Companies’ mergers and acquisitions are essential tools in restructuring and re-engineering their corporate setup. They enhance the productivity and profitability of corporate entities and can be used as tools of escape when a company’s business encounters problems.
Typically, a merger amalgamates two or more corporate bodies into one on equal terms. Here, two or more companies are fused with one being voluntarily liquidated by having its interests taken over by the other and its shareholders becoming shareholders in the other company, usually the larger company.
An acquisition contemplates the takeover by one company of sufficient shares in a separate company to give the acquiring company control over the acquired company.
LEGAL FRAMEWORK
The following regulations in Nigeria govern mergers and acquisitions:
• The Federal Competition and Consumer Protection (FCCP) Act 2019.
• The Federal Competition and Consumer Protection Commission Merger Review Regulations.
• The Federal Competition and Consumer Protection Commission Merger Review Guidelines.
• The Companies and Allied Matters Act 2020 (CAMA).
• The Companies Regulations 2021.
• Investments and Securities Act (ISA) 2007.
• The Rules and Regulations of the Securities and Exchange Commission (SEC); and
• The Nigerian Stock Exchange Rulebook
The FCCP Act is the primary legislation regulating mergers and acquisitions in Nigeria. The Act establishes the Federal Competition and Consumer Protection Commission and the Competition and Consumer Protection Tribunal.
The Companies and Allied Matters Act (CAMA) is another vital legislation that impacts M&A deals. In addition to its traditional function of regulation of companies, CAMA also includes provisions on share acquisitions and other forms of business disposals. CAMA provisions cover schemes of a merger, share buybacks by companies, pre-emptive rights of shareholders, financial assistance by companies to shareholders, etc.
The Nigerian Stock Exchange also plays a significant role in M&A involving publicly quoted companies that are required to comply with its listing requirements.
Before the enactment of the FCCP Act in 2019, the SEC was the sole regulatory body responsible for mergers and acquisitions of Companies in Nigeria. However, with the enactment of the FCCP Act, the FCCPC became the regulatory body responsible for mergers and acquisitions. Through the amendments of the SEC Rules on Mergers and Acquisition, the SEC has regained its power to regulate mergers and acquisitions related to public companies.
The approval of the FCCPC is required where a merger or a takeover would result in a change of control in the ownership of a company. According to the FCCP Act, where parties have applied for approval, the FCCPC is expected to review such applications and conclude its review of notified transactions within sixty (60) business days after the parties have fulfilled all notification requirements. However, this can be extended by an additional One Hundred and Twenty (120) business days.
The FCCP Act classifies mergers into categories with different approval requirements:
• Small mergers. These are transactions that do not require the FCCPC because their value is below the stipulated threshold.
• Large mergers. These transactions require approval from the FCCPC and cannot be implemented unless approved by the FCCPC. Where the merging entities in a large merger fail to notify the FCCPC, the merger will be void, and the merging entities will be liable to pay a fine on conviction.
There are sector-specific laws that are essential to mergers and acquisitions transactions. As a prerequisite to use the tools of mergers and acquisitions in business, some of the sector-specific laws provide that such industries must obtain approval from regulatory bodies.
The CBN Act of 2007 provides that the prior approval of the CBN is required for any transaction involving the acquisition or takeover of an equity stake of 5% or more of a Nigerian bank.
The Nigerian Communications Act 2003 also requires the prior approval of the NCC to be obtained for mergers in the telecommunications sector and transactions involving the acquisition or takeover of 10% or more of the shares of a licensed telecommunications company.
Under the National Insurance Commission Act 2004, any transaction involving the acquisition or takeover of 25% or more of the shares of an insurance company requires the prior approval of NAICOM.
Banks and Other Financial Institutions Act, Central Bank of Nigeria Guidelines for the banking industry, Petroleum Industry Act for the oil and gas sector are more examples of the numerous sector-specific regulations.
The FCCPC, in 2020, released Merger Review Guidelines and Regulations to govern the notification and review of mergers in Nigeria.
By Lynda Ikre
Disclaimer: Please note that the critical items highlighted above are solely for academic purposes and should not be taken as legal counsel. For further information, kindly send an email to l.ikre@zuriel.com.ng, or info@zuriel.com.ng or contact our office, Zuriel Law Practice , 14a Dasilva Street, Off Ayo Jagun Street, Lekki Phase 1, Lagos.
- The Effects of Mergers and Acquisitions on the Performance …. https://www.seahipaj.org/journals-ci/sept-2017/IJIFER/full/IJIFER-S-5-2017.pdf
- The Law Reviews – The Mergers & Acquisitions Review. https://thelawreviews.co.uk/title/the-mergers-and-acquisitions-review/nigeria
- Central Bank of Nigeria Reserve Management. https://www.cbn.gov.ng/IntOps/ReserveMgmt.asp
- Image Source : https://www.attractcapital.com/wp-content/uploads/2016/15/merger-acquisition-checklist.