The Investments and Securities Act ("new ISA") was passed into law in June 2007. The Act was enacted to repeal the Investments and Securities Act 1999 ("old ISA") and to establish the Securities and Exchange Commission (the "Commission" or "SEC") as the apex regulatory authority for the Nigerian capital market as well as regulation of the market to ensure the protection of investors, maintain fair, efficient and transparent market and the reduction of systemic risk. The new ISA introduces a number of new provisions in a wide variety of areas. This paper shall critically examine the provisions of the new ISA in relation to mergers in comparison with those of the old ISA. The paper shall attempt to highlight the substantive differences and comment on the potential impact of these differences on merger transactions in Nigeria.

This is especially important in the light of the recent upheaval in the Nigerian banking industry1 and the Central Bank of Nigeria's ("CBN") expressed intentions to effectively put 5 "troubled" banks up for sale2.

Under the old ISA, the M & A provisions were contained in part XI with a total of 24 sections whereas, in the new ISA, they are contained in part XII with a total of 35 sections. Whilst the take-over section of the Act substantially remains the same, a sweeping range of changes have been made in relation to the merger provisions. It may be rightly presumed that these changes are an offshoot of the recent spate of merger transactions arising out of the recapitalisation process in the banking and insurance industries, which signalled some of the inefficiencies that existed under the previously untested regime.

Merger Thresholds

The most significant inclusion to the new Act is the creation of thresholds and categories of mergers (See S. 120). Under the said section, the Commission shall from time to time prescribe –

  1. a lower and an upper threshold of combined annual turnover or assets, or a lower and an upper threshold of combinations of turnover and assets in Nigeria, in general or in relation to specific industries, for purposes of determining categories of mergers;
  2. a method for the calculation of annual turnover or assets to be applied in relation to each of the prescribed thresholds.

It states further in subsection (2) that, for the purpose of this part of the Act –

  1. "a small merger" means a merger or proposed merger with a value at or below the lower thresholds established in terms of subsection 1 (a);
  2. "an intermediate merger" means a merger or proposed merger with a value between the lower and upper thresholds established in terms of subsection1 (a); and
  3. "a large merger" means a merger or proposed merger with a value at or above the upper threshold established in terms of subsection 1 (a).

Pending the time the Commission prescribes the thresholds referred to in subsection (1) of this section, the lower threshold shall be N500, 000, 000 (five hundred million naira), while the upper threshold shall be N5, 000, 000, 000 (five billion naira).

Consideration Of Mergers

Under the provisions of the old ISA, the Commission may only approve a merger application where it is unlikely to cause a substantial restraint of competition or tend to create a monopoly in any line of business enterprise (section 99(3)). The provisions of the new ISA are more robust in relation to competition considerations. Under section 121, when considering a merger application, the Commission is required to initially determine whether or not the merger is likely to substantially prevent or lessen competition. The determination that a merger is likely to substantially prevent or lessen competition is not a total barrier to a merger. Where such a finding has been made, the Commission is required to determine:

  1. whether or not the merger is likely to result in any technological efficiency or other pro-competitive gain, which will be greater than, and off-set the anti-competitive effects;
  2. whether the merger can be justified on substantial public interest grounds. (section 121(1b) (i) & (ii)).

It should be noted that sub-section 3 of the same section provides the public interest grounds which must be considered, which include the effect of the merger on employment and the ability of national industries to compete in international markets. Further sub-section 2 indicates the factors which the Commission may take into consideration in determining whether or not a merger is likely to substantially prevent or lessen competition.

After the anti-competition factors are taken into consideration, the Commission is also required to determine whether all shareholders are fairly, equitably and similarly treated and given sufficient information regarding the merger (section 121(1d)).

After the Commission makes its initial determination, it may grant an approval in principle to the merger and direct the merging companies to make an application to the court to order separate meetings of shareholders of the merging companies in order to get their concurrence to the proposed merger. If a majority representing not less than three quarters in value of the shares of members being present and voting either in person or proxy at each of the separate meetings agree to the scheme, the scheme shall be referred to the Commission for approval.

Merger Procedures

Under the old ISA, there was a blanket provision as to the procedure for mergers irrespective of size. However, under the new ISA, each merger threshold has its own clearly set out procedure.

Small Mergers

A party to a merger of this nature is not required to notify the Commission of the merger unless the Commission specifically requires it to do so and the merger may be implemented without approval unless required to notify the Commission. However, a party to a small merger may voluntarily notify the Commission of the merger at any time.

It should be noted that within 6 months after a small merger has commenced implementation, the Commission may require the parties to the merger to notify the Commission in the prescribed form and manner if in the opinion of the Commission, the merger may substantially prevent or lessen competition or cannot be justified on public interest grounds. At this point, no further steps can be taken to implement the merger until it has been approved or conditionally approved. These provisions may present difficulties in practice. For example, it is unclear how the Commission would become aware of the merger before its consummation if it is not notified. It may be suggested that the reasoning behind these provisions was so as not to totally exclude small mergers from the supervision of the Commission. However as currently worded, it is unlikely to achieve that purpose.

The Commission is entitled to not more than 60 working days (20 working days in the first instance and an extension of up to 40 working days) in total to consider the approval of a small merger. Where the Commission has not notified the parties within that period, it is deemed to have granted its approval to the merger.

If the merger is approved by the Commission, the parties shall apply to the court for the merger to be sanctioned and when so sanctioned, the same shall be binding on the companies. The court may by the order sanctioning the merger or by the subsequent order make provision for any or all of the following matters:-

  1. the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;
  2. the allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company or for any person;
  3. the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;
  4. the dissolution without winding up of any transferor company;
  5. the provision to be made for any persons who in such manner as the court may direct, dissent from the compromise or arrangement;
  6. such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or merger shall be fully and effectively carried out.

It should be noted that in making an order which includes the dissolution of a company, the court must be satisfied that adequate provision has been made for employees of the company to be dissolved.

Intermediate And Large Mergers

A party to an intermediate or a large merger must notify the Commission of that merger in the prescribed form and manner. Under this head, the primary acquiring company and the primary target company shall each provide a copy of the notice contemplated above to any trade union that represents a substantial number of its employees or the employees concerned or representatives of the employees concerned, if there are no such registered trade unions. Parties to mergers of this nature shall not implement the merger until it has been approved, with or without conditions by the Commission.

Intermediate Mergers

Within 20 working days after all parties to an intermediate merger have fulfilled all their notification requirements in the prescribed manner and form, the Commission after having considered the merger in terms of section 121, may issue a certificate in the prescribed form, approving the merger, approving the merger subject to any conditions or prohibiting implementation of the merger. However, the Commission may extend the period for considering the proposed merger by a single period not exceeding 40 days and in that case, it shall issue an extension certificate to any party who notified it of the merger. If upon the expiration of the 20 days provided above or the extension period, the Commission has not issued a certificate referred to above, the merger shall be deemed as having been approved subject however to revocation as provided by S. 127 of the new Act. The Commission shall thereafter publish a notice of the decision in a gazette and issue written reasons for the decision if it prohibits or conditionally approves the merger or requested to do so by a party to a merger.

Large Mergers

After receiving notice of a large merger, the Commission shall refer the notice to court and within 40 working days after all parties have fulfilled all the prescribed notification requirements, forward to the court a statement, whether or not implementation of the merger is approved, approved subject to any conditions or prohibited.

Comments On Merger Procedure

The review of the merger provisions of the new ISA suggests that the Act was drafted with the intent of simplifying the merger process. However, the inelegant wording of the Act, in addition to the poor structuring of its sections and sub-sections create an ambiguous position which is likely to engender confusion or lead to unintended consequences. Some of these issues are discussed below:

  1. Whilst it appears that the intention of the draftsman was to limit the notification and reporting requirements for small mergers, it does not explicitly provide for the procedure to be followed in small mergers without SEC notification. For example section 121(4) provides for an application for a court-ordered meeting of shareholders to be made by the merging entities on the direction of SEC. There is no explicit provision for an application for a court-ordered meeting of shareholders made independently of SEC. Additionally, under section 122(6) the merging parties may only apply for a court sanction "if the merger is approved by the Commission".
  2. The approval timing provisions also create an absurdity. In the circumstances where SEC notification is required for a small merger and in all cases of an intermediate merger, the Commission may take up to a total of 60 working days to issue its approval or otherwise. However in the case of large mergers, SEC may only take up to 40 working days. In the first part, 60 working days is a significantly long period for approval of the consummation of a small merger. Secondly, it defies logic that a large merger, which theoretically should take more time to investigate, is granted a shorter time for approval.
  3. In addition, the Act leaves the process for completion of a large and intermediate merger silent. Whilst section 122(6) explicitly states what should happen after the approval of a small merger (a court sanction), no such provisions exist for large and intermediate mergers. It would have been sensible for the provisions of section 122(6) to have been included in a general section such as section 121 to allow its applicability to all the merger types.

Other Provisions

In addition to the procedure for merger provisions discussed above, the new ISA has granted new powers to SEC to break up a company. Under section 128, where the Commission determines that the business practice of a company substantially prevents or lessens competition, it may order the break up of the company into separate entities, in such a way that its operations do not cause a substantial restraint of competition in its line of business or in the market. These provisions grant the Commission powers which are traditionally held by an Anti-Competition Commission. In the absence of such a commission in Nigeria, there is value in this power being held by an entity such as SEC, however, it would have been expected that the Act would have included more substantive provisions regarding the use of this power by the Commission, so as to avoid any appearance of abuse.

Takeover Provisions

The ISA 2007 requires that a takeover bid be made where a person holds 30 percent or more of the voting rights of a company or where persons acting in concert hold a minimum of 30% but not more than 50%, with intentions to acquire more.3 A takeover bid may only be made after an authority to proceed has been granted by the Commission4. An application for an authority to proceed, must give particulars of the proposed bid and contain such information and be accompanied by documents or reports as prescribed by regulation5. The Commission is required by law to keep the contents of any application or accompanying documents confidential6. In considering whether to grant an authority to proceed, the Commission is required to have regard only to the likely effect on the economy of Nigeria and on any Federal Government policy on manpower and development7.

Where an authority to proceed has been granted by the Commission, an offeror may prepare a takeover bid, which must be registered with the Commission8. Upon registration of a takeover bid by the Commission, the bid may be despatched by the offeror. The takeover bid must be dispatched concurrently by the offeror to: i) each director of the offeree company; ii) each shareholder of the offeree company; iii) the Commission9.

The ISA 2007 also makes provisions with respect to the process of a bid offer and how to deal with the issue of dissenting shareholders.

Final Comments

The new M & A provisions appear to indicate an intention to create a less tedious and a more competition oriented merger process. They do however raise considerable ambiguities, which may have a negative effect on M & A transactions in Nigeria. Indeed, the M & A provisions have not yet been significantly challenged. If the plans of the CBN regarding the five "troubled" banks are brought into fruition, it would indeed test the strength of these provisions.


1. The Central Bank of Nigeria recently injected capital into 5 banks and dismissed the executive management of those institutions.

2. See "Sanusi: I prefer sale of five troubled banks", <> and "CBN Unfolds Mergers, Acquisitions Plans For Ailing Banks",

3. Section 131, ISA 2007.

4. Section 234, ISA 2007.

5. Section 134(2), ISA 2007. It is useful to note that the current SEC Rules do not contain details of the information or accompanying documentation. Indeed the exposure draft of the new proposed rules does not address this issue either.

6. Section 134(5), ISA 2007.

7. Section 134(6), ISA 2007.

8. Section 135, ISA 2007.

9. Section 138, ISA 2007.

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.