Other than restricted enterprises, which are prohibited for both Nigerians and foreign investors and restrictions in highly regulated sectors such as the oil and gas and broadcasting sectors, there are no other applicable restrictions on acquisitions by foreign entities in Nigeria. The areas of business prohibited under Nigerian law are: the production of arms and ammunition; production of and dealing in narcotic drugs and psychotropic substances; production of military and paramilitary wears and accoutrement including those of the police and the customs, immigration and prison services; and other items as the Federal Executive Council may from time to time determine.

Acquisition of private or public companies are principally regulated under the Investments and Securities Act 2007 (the "ISA") and the Rules and Regulations made pursuant to the ISA (the "SEC Rules"). The listing rules of the Nigerian Stock Exchange also contain regulations that impact on acquisition transactions by public listed entities. The provisions governing schemes of arrangement are contained in the Companies and Allied Matters Act, Chapter C20, Laws of the Federation of Nigeria 2004 ("Companies Act"). Pursuant to the ISA, the key regulator of acquisitions in Nigeria is the Securities and Exchange Commission (the "SEC").

Section 118 of the ISA and Rule 229(1) of the SEC Rules respectively provide that every acquisition "between or among companies" is subject to the mandatory prior review and approval of the SEC. This applies irrespective of whether the entities are public or private companies. An acquisition is defined by the SEC Rules to mean "the take-over by one company of sufficient shares in another company to give the acquiring company control over that other company". The ISA and SEC Rule, however, provide certain exemptions to the requirement to obtain SEC approval. It is only with respect to transactions involving:

  1. holding companies acquiring shares solely "for the purpose of investment", and not the use of those shares by voting or otherwise to cause or attempt to cause substantial restraint of competition; or that tend to create monopoly in any line of business enterprise (that is, a holding company that intends to acquire the shares of its subsidiary for investment purposes only). A company is regarded by the Companies Act to be a holding company of another if (i) it is a member of it and controls the composition of its board; (ii) it holds more than half of its nominal value of shares; or (iii) where the other company is a subsidiary of another company which is its subsidiary.
  2. "small mergers" - that is, mergers between companies which have a combined annual turnover or assets of less than N1 billion (approximately US$6.4 million). The merging entities are not required to notify the SEC of that merger but are required, only, to inform the SEC at the conclusion of the merger.

    Section 122 (1) of the ISA provides that a party to a "small merger" is not required to notify the SEC of the merger unless it is specifically required by the SEC to do so, and may implement the merger without SEC approval. The parties may however, voluntarily notify the SEC of the merger. SEC Rule 230 further specifies that in a small merger, the merging entities are not required to notify the SEC of that merger but shall only inform the SEC at the conclusion of the merger.
  3. acquisition in a private/ unquoted public companies with assets or turnover below N500 million (approximately US$3.2 million).

The SEC will give its approval only if it is satisfied that:

  1. the acquisition is unlikely to cause a substantial restraint of competition or tend to create a monopoly in any line of business enterprise;
  2. the use of such shares by voting or granting proxies or otherwise shall not cause a substantial restraint of competition or tend to create a monopoly in any line of business enterprise; and
  3. although the contemplated merger is likely to restrain competition, one of the parties to the merger can prove the contrary.

There are also other sector-specific laws that regulate acquisition transactions - the prior approval of the relevant sector regulator is required for a change of control. These laws and guidelines are binding on the companies in that industry in addition to the SEC Rules.

In addition, clearance from the Federal Inland Revenue Service is required under the Companies Income Tax (Amendment) Act 2007. Section 25(12) of the act provides that no merger, takeover, transfer or restructuring of trade or business carried on by a company shall take place without having obtained the Federal Inland Revenue Service's direction and clearance with respect to any tax that may be due and payable under the Capital Gains Tax Act. All asset transfers are valued on an arm's-length basis and capital gains tax (10% of chargeable gains) computed in respect of any gains made on the transfer of assets.

Cross border lending

There are no mandatory requirements that a foreign lender must comply with in order to advance a loan to a borrower in Nigeria. Having said that, Nigeria foreign exchange regulations stipulate that in order for a borrower to remit interest and principal payments to a lender through the official foreign exchange market, the lender must have obtained evidence, in the form of a certificate of capital importation issued by a Nigerian bank (commonly referred to as a "CCI"), to the effect that the foreign loan was brought into Nigeria. In the absence of a CCI, the borrower will be unable to access the official foreign exchange market for the purpose of remitting interest and principal payments but could, if it has access to independent sources of foreign currency (i.e. as would a borrower that generates foreign currency through exports) lawfully make such interest and principal payments from its own resources.

Finally, if the articles of association of a Nigerian borrower require it to obtain shareholders and/or board approval before it can obtain the type of credit facility from a bank or other institution, the Nigerian borrower must obtain that approval before it can lawfully obtain such a credit facility.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.