Mergers And Acquisitions In Ghana: A Guide For Investors And Corporations

Introduction

Merging businesses are strategic practices that enable companies to achieve key objectives such as market expansion, enhanced competitive positioning, and diversified operations.

Legal and Regulatory Framework for M&A in Ghana

The Companies Act, 2019 (Act 992)

Act 992 primarily governs M&A in Ghana. Section 238(1) provides that "despite any other provisions on arrangements or mergers in this Act, a company may, with a view to effecting an arrangement or merger, resolve by special resolution that,

the company be put into a voluntary liquidation of members, and
the liquidator be authorised,
1. to sell the whole or part of the undertaking or assets of a company to another body corporate, whether a company within the meaning of this Act or not, in this Part called the transferee company, in consideration or part consideration of fully paid shares, debentures or other like interests in the transferee company, and
2. to distribute those shares, debentures or other like interests in specie among the members of the company in accordance with their rights in the liquidation.

It is further provided under section 238(3) that, if

within one year from the date of the passage of the special resolution, an order is made under section 219 or for the winding up of the company under the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180), the arrangement or merger and the sale and distribution shall not be valid unless sanctioned by the Court, or
a member of the company, by notice in writing addressed to the liquidator and left at the registered office of the company within twenty-eight days after the passage of the resolution, dissents from the arrangement or merger in respect of all of the shares held by that member, the liquidator shall abstain from carrying the resolution into effect or shall purchase the shares at a price to be determined in a manner provided by subsections (4), (5) and (6) of this section.

Terms of a Merger Proposal

Section 242(1) of Act 992 provides that "a merger proposal shall set out the terms of the scheme and provide at least for the following:

in respect of each transferor company and the transferee company,
1. the name of the company
2. the address of the registered office of the company, and
3. the type of company
the number of shares in the transferee company to be allotted to members of a transferor company for a given number of their shares referred to as the "share exchange ratio;"
the amount of any cash payment;
the terms relating to the allotment of shares in the transferee company;
the date from which the holding of shares in the transferee company will entitle the holders to participate in profits, and any special conditions affecting that entitlement;
the date from which the transactions of a transferor company are to be treated for accounting purposes as being those of the transferee company;
any rights or restrictions attaching to shares or other securities in the transferee company to be allotted under the scheme to the holders of shares or other securities in a transferor company to which any special rights or restrictions attach, or the measures proposed concerning them;
the name of the transferee company where it is the same as the name of one of the merging companies,
the full name and residential address of each director and the secretary of the transferee company;
the address for service of the transferee company;
the shareholding structure of the transferee company, specifying the
1. number of authorised shares of the company; and
2. rights, privileges, limitations, and conditions attached to each share of the company;
the manner in which the shares of each transferor company are to be converted into shares of the transferee company;
where the shares of a transferor company are not to be converted into shares of the transferee company, the consideration that the holders of those shares are to receive instead of shares of the transferee company;
any payment to be made to a member or director of the transferor company, other than a payment of the kind described in paragraph (m);
details of any arrangement necessary to complete the merger and to provide for the subsequent management and operation of the transferee company; and
a copy of the proposed constitution of the transferee company, if any

Approval of Merger Proposal (Section 243 of Act 992)

The directors of each merging company must by a resolution indicate that the merger is in the company's best interest and that the transferee company will remain solvent once the merger takes effect. The directors who vote in favour of the resolution must sign a certificate affirming that the required conditions have been met and they must indicate the grounds for their opinion.

Directors of the merging companies are required to provide members of the transferor company with the following documents at least 28 days before the merger takes effect:

A copy of the merger proposal;
Copies of the certificates given by the directors of each transferor company;
A summary of the principal provisions of the constitution of the transferee company, if any;
A statement that a copy of the constitution of the transferee company shall be supplied to any member of the company upon request;
A statement setting out the rights of members pursuant to the merger including the number of shares in the transferee company to be allotted to members of a transferor company for a given number of their shares and the amount of any cash payment;
A statement of any material interest of the directors in the proposal, whether in that capacity or otherwise; and
Any other information and explanation that may be necessary to enable a member of the company to understand the nature and implications for the transferor company and its members of the proposed merger.

The directors must also send a copy of the merger proposal to each secured creditor of the transferor company at least 28 days before the effective date. Furthermore, the directors must publish a notice of the merger proposal, highlighting the availability of the proposal for inspection at the registered offices of the merging companies and that any member, creditor or other individual to whom a merging company owes an obligation, is entitled free of charge to a copy of the proposal.

Finally, there must be a majority approval by members and creditors of each merging company, with at least 75% support in value from each class of members or creditors present and voting, either in person or by proxy. If the constitution of a transferor company or the merger proposal specifies, approval may also be required from an additional class of members or an interest group.

Registration of Merger (Section 245 of Act 992)

The following documents must be delivered to the Office of the Registrar of Companies:

the approved merger proposal;
any certificate required under section 244(2) or 245(5);
a certificate signed by the directors of each transferor company stating that the merger has been approved in accordance with Act 992 and the constitution of the company; if any,
where the transferee company is a new company or the merger proposal provides for a change of the name of the transferee company, a copy of the notice reserving the name, if any, of the company;
a certificate signed by the directors, or proposed directors, of the transferee company stating that where the proportion of the claims of creditors of the transferee company in relation to the value of the assets of the company is greater than the proportion of the claims of creditors of the transferor company in relation to the value of the assets of that transferor company, no creditor shall be prejudiced by that fact;
a document, in the prescribed form, signed by each person named as a director or secretary in the merger proposal for the transferee company, consenting to act in that capacity; and
a report regarding the fairness of the merger and issued by an insolvency practitioner appointed by each company unless dispensed with under section 247.

The court may, on the application of a merging company or a member or a creditor of the merging company grant an exemption from publication of the report issued by an insolvency practitioner and other requirements of law if the Court considers it appropriate. The requirement for such a report may only be dispensed with if the merging companies agree in writing to the dispensation.

Within seven days after submitting the required documents, in the case of a merger by absorption, the Registrar shall issue a certificate of merger. In the case of a merger by formation of a new company, the Registrar shall enter the particulars of the transferee company in the register; and issue a certificate of merger together with a certificate of incorporation.

Powers of the Court in respect of a Merger Proposal (Section 251 of Act 992)

Where the Court is satisfied that giving effect to a merger proposal would unfairly prejudice a member or creditor of a transferor company or any other person to whom a transferor company owes an obligation, the Court may, on the application of that person, make an order
1. directing that effect shall not be given to the proposal,
2. modifying the proposal in a manner as may be specified in the order,
3. directing the company or the directors of the company to reconsider the proposal or any part of it, and
4. in relation to the proposal that the Court considers fit, at any time before the date on which the merger becomes effective.
The Court may make an order under subsection (1) on the conditions that the Court considers appropriate.

The Securities Industry Act, 2016 (Act 929)

The legal and regulatory framework for an M&A transaction involving a publicly listed company extends to the Securities Industry Act, 2016 (Act 929), as amended by the Securities Industry (Amendment) Act, 2021 (Act 1062). The Securities and Exchange Commission (SEC) functions as the primary regulatory authority, overseeing compliance through the SEC Regulations, 2003 (L.I. 1728), and the SEC's Code on Takeovers and Mergers, 2008 (the Takeover Code). These instruments establish the requisite standards and procedural requirements for M & A transactions.

Section 3(h) of Act 929 mandates the SEC to review, approve and regulate takeovers, mergers, acquisitions and all forms of business combinations in accordance with any law or code of practice requiring it to do so.

Requirements under the SEC Takeover Code

The Takeover Code applies to all takeovers and mergers where the target company is a public company, as well as all takeovers and mergers between or among public companies, whether listed or unlisted on the Ghana Stock Exchange (GSE).

Mandatory Offer

The Takeover procedure under the Code commences with a mandatory offer that is, acquiring thirty percent (30%) or more of the voting shares of a public company within a period of twelve (12) months, or acquiring voting shares that result in ownership of more than fifty percent (50%) of the voting shares of a public company.

No person shall make a mandatory offer to exercise effective control in the Target Company without complying with the takeover procedures highlighted below.

Takeover Announcement and Statement

The intention to make a takeover offer must be announced in a newspaper of general circulation prior to the circulation of the offer. Within 24 hours of the resolution of the board to acquire effective control in a public company, an announcement must be made through the press, in the electronic media and in at least two (2) national newspapers. Within ten (10) days of the announcement of the intention, the offeror must submit to the offeree and to the SEC a statement containing the information specified in the second schedule to the Code.

Obligations of the Offeree

Upon receiving the offeror's statement, the Board of Directors of the offeree must notify the SEC and announce the proposed takeover offer through a press notice within 24 hours. This press notice must be published in at least two daily newspapers of national circulation and include all material information from the offeror's statement.

The Takeover Offer Document

The offeror must submit a Takeover Offer Document to the SEC for approval within ten days of submitting the offeror's statement. This document should include all required information as per Schedule III and must be certified by the offeror or authorized directors as accurate. The SEC will approve or advise on the document within thirty days. Once approved, the offeror must submit the document to the offeree within five days, and the offeree is then required to circulate it to its shareholders within fifteen days, along with the independent adviser's statement.

Requirements for Takeover Offer

The Takeover Offer Document must be dated and remain open for acceptance by the offeree for thirty (30) days, unless varied.

The offer shall not be conditional upon the Offeree approving or consenting to any payment or other benefit being made or being given to any director of the Offeree or to any other person that is deemed to be related to the Offeree, as compensation for loss of office or as consideration for, or in connection with, his retirement from the office.

The Offer shall state:

whether the offer is conditional upon acceptance of the offer being received in respect of a minimum number of issued voting shares of the offeree and if so, the percentage.
where the shares are to be acquired in whole or in part for cash, the period within which payment will be made and the method of such payment.
where the shares are to be acquired through a share swap, the proportion of the share swap and the period within which the Offeree's shareholders shall receive the new shares.
whether the Offeror is engaged in the same line of business as the Offeree.
whether the offer is conditional upon receiving approval under any Law in Ghana or other regulatory approval outside Ghana where the transaction involves companies incorporated outside Ghana.
whether the offer is conditional upon maintenance of a minimum percentage of shareholding by the general public to satisfy the continuing eligibility requirements for listing, and
the circumstances that shall apply in the event the conditions above are not fulfilled.

Every Takeover Offer Document must contain the following words which shall be prominently displayed on the first page of the Takeover Offer Document: "To better understand the merits of this offer, you should consult the independent adviser appointed by your Board of Directors, or your Broker/Dealer, investment bank, or other professional investment adviser".

Obligations of Board of Directors of Target Company

The Board of Directors of the Offeree (Target company) must issue a Statement within 15 days after receiving the Takeover Offer Document, recommending whether shareholders should accept or reject the offer.

The Statement must include:

details specified in Schedule IV.
all relevant information for shareholders and their advisers to make an informed decision about the takeover offer, addressing both the merits and risks. These include but are not limited to:
the Offeror's stated intentions regarding the continuation of the business of the Offeree.
the Offeror's stated intentions regarding major changes to be introduced in the business, including plans to liquidate the Offeree, sell its assets, redeploy the fixed assets of the Offeree or make any other major change in the structure of the Offeree.
the Offeror's stated long term commercial justification for the proposed takeover offer.
The Offeror's stated intentions regarding the continued employment of the management and employees of the Offeree and of its subsidiaries.
The reasonableness of the takeover offer, including, the reasonableness and accuracy of profit forecasts for the Offeree, if such forecast is included by the Offeror in the Offer Document; and
any other information relevant for the informed assessment of the holders of voting shares and their professional advisers

Two Directors of the Target Company must sign the Statement, certifying that, to the best of their knowledge, it is accurate, complete, and not misleading and it includes all required disclosures under the Takeover Code.

Independent Advice

The Board of Directors of the Offeree must appoint an independent adviser within five days of receiving the Offeror's Statement. This adviser should be a licensed investment adviser or broker-dealer acceptable to the SEC. The substance of the independent adviser's advice must be made known to the holders of the class of the voting shares to which the Takeover offer relates, in a Statement by the Offeree to its shareholders.

The Board of Directors of the Offeror is required to appoint an independent adviser where the takeover offer being made is a Reverse Takeover or where the Board of Directors of the Offeror is faced with a conflict-of-interest situation. The advice given to the Board of Directors of the Offeror must be communicated to all the holders of voting shares of the Offeror. In the case of a Reverse Takeover, approval from the holders of voting shares must also be obtained.

Statement by Independent Adviser

The independent advisers appointed by the Offeree's Board of Directors must prepare and send a Statement to both the Board and the SEC before it is shared with the holders of the Offeree's voting shares. This Statement must be served on relevant shareholders within fifteen days of the Takeover Offer Document being served.

The independent adviser is required to disclose all pertinent information in their Statement, which should help the holders of voting shares, the Board of Directors, and any relevant professional advisers make informed decisions about accepting or rejecting the takeover offer. The information disclosed should be based on what the Board of Directors and the independent adviser know, as well as what the adviser can reasonably obtain through inquiries. The independent adviser's Statement must include all information specified in Schedule V of the Code.

Filing Fees

At the time of filing with the SEC of any Statement required under the Code, for any takeover, consolidation, or merger offer, the Commission shall require payment of a fee as may be determined by the SEC from time to time.

Specific Sectoral Legislation

Several laws are applicable when undertaking an M&A transaction in a regulated sector. These include:

The Banks and Specialized Deposit-Taking Act, 2016 (Act 930) which regulates such transactions in the banking industry. Also relevant is the Bank of Ghana Mergers and Acquisitions Directive, 2021.
The Minerals and Mining Act 2006 (Act 703), which regulates the Minerals and Mining industry;
The Petroleum (Exploration and Production) Act, 2016 Act 919) and Petroleum (Local Content and Local Participation) Regulations, 2013 (LI 2204) which govern the petroleum industry.
The Ghana Investment Promotion Centre Act 2013 (Act 865) applies to business incorporations which involve foreign participation.

Tax Issues involved in M & A Transactions

Section 47 of the Income Tax Act 2015, (Act 896) as amended by Act 1094 provides that "the gains on realization of an asset accruing to or derived by a company arising out of a merger, amalgamation or re-organization of a company is exempt from tax where there is continuity of at least fifty percent (50%) of underlying ownership in the asset".

Labour and Employee Issues in M & A Transactions

Section 65(2) of the Labour Act 2003, (Act 651) is to the effect that, where an undertaking is closed down, or undergoes an arrangement or amalgamation, and such actions sever the worker's legal relationship with the employer, leading to unemployment or a diminution in employment terms, the worker shall be entitled to redundancy pay from the undertaking where they were employed immediately prior to the event.

Conclusion

Successfully navigating M&A transactions in Ghana demands a thorough understanding of the legal and regulatory landscape. Partnering with legal experts who offer valuable insights into the complexities of these transactions helps mitigate risks and ensures a seamless integration post-transaction.

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.