What initiated the Merger Review Regulation?
On 24th November, 2020, the Federal Competition and Consumer Protection Commission ("FCCPC" or "the Commission"), published the Federal Competition and Consumer Protection Act Merger Review Regulations, 2020 ("the Regulation" or "MRR").
The intent of the Regulation rings clear- to prescribe the substantive and procedural requirements for the monitoring, notification and implementation of (proposed) merger transactions under the Federal Competition and Consumer Protection Act 2018 ("the Act").
Under the erstwhile regulatory landscape, the Security Exchange Commission ("SEC") was the apex regulatory institution responsible for guiding merger processes. In furtherance to its regulatory functions, SEC had the duty of hammering down on mergers with (actual or potential) anti-competitive effects.1
Upon the enactment of the Act in 2018, which empowered the FCCPC with the regulatory power to supervise and regulate merger processes, a vacuum was momentarily created on guidance provisions for regulating mergers. This lacuna led to the publication of the "Joint Advisory and Guidance on Mergers, Acquisitions & Other Business Combinations Notifications" (Joint Advisory) issued by SEC and the FCCPC on 3rd May, 2019. The Joint Advisory prescribes that FCCPC and SEC are to jointly review all notifications of mergers and other business combinations until further notice.
However, with the publication of the MRR, it appears that the SEC has now been fully divested of the regulatory role of merger review, and the Commission is now fully vested with the sole powers for regulating mergers. Consequently, pre-merger notifications, applications and grants or approvals of merger transactions are now within the exclusive purview of the Commission.
What does the Merger Review Regulations seek to achieve?
The Regulation seeks to provide guidance on the regulatory review process for merger transactions while also prescribing the procedure for remediation and disposition of notified merger cases. The Regulation states the basis for determining whether a relevant merger situation has arisen and the criteria for satisfactory notification to the Commission.
While the Regulation recognises that not all corporate restructurings will qualify as a merger, it places emphasis on the role of "change in control", as a verifiable determinant of a relevant merger situation. The Regulation establishes change in control by applying the "material influence test", which essentially considers the lowest level of control primarily through voting and shareholding rights.
A standard example is while the acquisition of a shareholding interest of up to 25% ordinarily raises a (rebuttable) presumption that a shareholder has the ability to materially influence a company's policies, the acquisition of a 15% shareholding interest would not necessarily raise such presumption.
Another determinant of a relevant merger situation is the "Threshold test". This essentially revolves around the Notice of Threshold for Merger Notification. This provides that a merger is notifiable if in the preceding financial year, the annual turnover of the target in, into or from Nigeria equals or exceeds Five Hundred Million Naira or if the combined annual turnover of the acquiring undertaking and target undertaking in, into or from Nigeria equals or exceeds One Billion Naira.
What are some of the highlights or novel provisions of the Regulation?
The Regulation provides for negative clearance applications, expedited procedure for notification and pre-merger consultations. Under the new regime, undertakings that are uncertain if their (proposed) merger transaction is notifiable are now able to make applications (Form 4) to the Commission for direction by providing requisite background information and documentation.
Similarly, undertakings may engage in an informal pre-notification consultation with the Commission for guidance before they commence their applications. The essence is to ensure satisfactory notification of their transaction to the Commission.
Undertakings who can prove their transactions will have no potential or actual effects of substantially lessening or preventing of competition may also apply for an expedited notification under the Regulation (Form 2).
Before, during and after the notification process, merging parties are mandated to adhere to their "standstill obligations", i.e. maintain the status quo by ensuring the merger transaction is not consummated before obtaining the approval of the Commission. More importantly, undertakings are prevented from exchanging commercially sensitive information or entering into pre-merger Agreements during this period and must generally refrain from "Gun-Jumping" i.e. activities that may interfere with the status quo and the state of the market at the time of notification. Instructively, violations of stand still obligations are to be met with sanctions under the Administrative Penalties Regulations, 2020.
What is the typical timeframe for a merger notification?
Similar to the old regime, small mergers under the new regime are generally not notifiable, unless the Commission determines the (proposed) merger will substantially lessen or prevent competition or if merger parties voluntarily notify the Commission.
Large mergers on the other hand are notifiable if they satisfy the "control" and "threshold" tests earlier mentioned.
Applications for large mergers are to be commenced by Form 1 (Notice of Merger) except in instances where merging parties can prove that the merger transaction cannot and will not potentially substantially prevent or lessen competition. In this case, merger parties are encouraged to apply under the expedited procedure using Form 2.
The Regulation requires the publication of Form 1A (parties and executive summary of proposed transaction) within 2 business days of a complete and satisfactory notification. Form 1A (Notice of Merger for Publication) is required to have been served on the trade unions of the employees of the undertakings seeking approval for merger before its publication on the Commission's website.
The publication serves as a vital function for the Commission to receive warnings or complaints from the general public regarding the proposed transaction and merger parties.
Typically, the notification, review and publication process for a small merger should take 60 days from satisfactory notification, while the same process for a larger merger should take 120 days from satisfactory notification.However, this will greatly depend on the preparation of merger parties, availability of satisfactory documentation and information, remedying of issues identified by the Commission, etc. The entire timeframe is detailed in the Notice In Respect of Indicative Timeframes for Merger Notification and Review Process.
After the conclusion of the Phase One and/or Phase Two review process, the Commission will issue its decisional report to merger parties report in Form 3, either approving the merger, prohibiting it or approving it subject to conditions.
The Regulations also contain remedial and appeal provisions for dissatisfied merger parties.
What are the Commission's application fees?
The notification and review process of merger transactions cuts across pre-notification engagements with the Commission to the final decision stage.
The merger notification fees are based om both the consideration sum of the transaction and the last annual turnover of the undertaking. Whilst the first N500,000,000 is assessed on a 0.3% of either the consideration of transaction or last annual turnover, whichever is higher, the next N500,000,000 is assessed at 0.225% of the consideration of transaction or last annual turnover. Any sum thereafter is to be assessed on a 0.15% of the consideration of transaction or 0.75% of the last annual turnover.
Any concluding remarks?
The relevance of the Regulation to new merger transactions cannot be over emphasized. The current wave of technological drive, global economic advancement, corporate well-being and market players' desire for growth and increased market shares definitely presents a unique moment for merger transactions.
It is evident that the Commission's general approach to administering the Act's merger review process is to combat harmful merger transactions that could actually or even potentially inhibit competition in the Nigerian market space. While it may be presumptuous to suggest that the Regulation has anticipated all circumstances or scenarios that may arise under the new regime, it has undoubtedly provided a working framework for effective merger notification and review in Nigeria.
1. Section 118 of Investment and Securities Act
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