WHAT IS MERGER AND ACQUISITION IN NIGERIA?

Most companies are constantly driven to improve their efficiency in a competitive environment, hence mergers and acquisitions have continued to remain very effective in achieving this end.

CHAMAN LAW FIRM

6/3/2022 3 min read

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WHAT MERGER AND ACQUISITION IN NIGERIA

Introduction

One of the viable tools in corporate restricting is merger and acquisition, in response to this, Nigeria like every other concerned country has accepted and recognized mergers and acquisitions. Most companies are constantly driven to improve their efficiency in a competitive environment, hence mergers and acquisitions have continued to remain very effective in achieving this end.

WHAT IS MERGER AND ACQUISITION?

A merger occurs when two separate entities combine forces to create a new, joint organization. While an acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company.

THE LAWS THAT GOVERN MERGER AND ACQUISITION IN NIGERIA ARE:

1. 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;

2. the Companies and Allied Matters Act 2020 (CAMA);

· the Companies Regulations 2021;

3. Investments and Securities Act (ISA) 2007;

· the Rules and Regulations of the Securities and Exchange Commission (SEC); and

· the Nigerian Stock Exchange Rule book

OTHER LAW THAT ALSO REGULATE MERGER AND ACQUISITION ARE:

1. Banks and Other Financial Institutions Act and the Central Bank of Nigeria's Guidelines and Incentives on Consolidation in the Banking Industry are relevant to M&A in the banking sector;

2. Nigerian Communications Act regulates the telecommunications sector;

3. Electric Power Sector Reform Act regulates the electricity sector;

4. Petroleum Industry Act 2021 in the oil and gas industry; and

5. National Insurance Commission Act regulates the insurance industry.

PROCEDURE FOR PROCESSING AN APPLICATION FOR MERGER AND ACQUISITION ARE:

There are three forms of a merger as defined by the SEC, which are determined by the value of the combined assets of the merging companies. Each of these categories has similar procedures for application. These are:

Small Merger: the lower threshold is based on the combination of assets and turnovers of below N1, 000,000,000.00 (One Billion Naira). Under this threshold, the merging companies need not notify SEC. But practitioners believe that it is advisable to inform SEC to avoid a potential regulatory risk that would be involved.

Intermediate Mergers: This involves the threshold of a combination of both assets and turnovers between N1, 000,000,000.00 (One Billion Naira) to N5, 000,000,000.00 (Five Billion Naira).

Large Mergers: This involves the combination of assets above the threshold of N5, 000,000,000.00 (Five Billion Naira)

Procedure for Merger under the Securities and Exchange Commission Rules SEC Rules 2013 are:

  • Parties to the merger will prepare a merger proposal document between the merging companies after conducting legal and financial due diligence such as ownership of the business, employees, accounts of the company, tax liabilities of the company, values of assets and liabilities, product development and competitors etc on the target company and bidding company.

  • Parties shall file a pre-merger notification to the Office of the Director-General at SEC within 6 weeks with the scheme documents for review and where there is any deficiency it will be communicated to the applicant.

THE DOCUMENTS TO BE SUBMITTED ARE:

1. Letter of intent to merge by the companies.

2. Extract of Board resolution of the merging companies duly certified by the Director and the Company Secretary.

3. Signed and notarized consent letters of Directors and parties to the merger.

4. Information Memorandum showing a brief history of the merging companies, objectives of the merger, financial information including balance sheet, profit and loss account, list of competitors of the merging entities, authorised share capital, directors' beneficial interest and list of shareholders with their percentage shareholdings.

5. 2 hard copies of the merging scheme document and an electronic copy

6. Copies of letters informing the trade union of the relevant industry of the intention of companies to merge

7. Copies of the Certificate of Incorporation of the merging companies certified by the Company Secretary.

8. A letter appointing a financial Adviser (s) and a draft of a financial service agreement between the merging companies and their financial advisers.

9. Certified true copies of the relevant CAC Forms showing share capital, return of allotment (Form CAC 2.1), and particulars of Directors (Form CAC 7).

10. A letter of no objection from the company regulators where it is applicable

11. Evidence of payment of N50, 000.00 (Fifty Thousand Naira) merger notification fee per merging company.

12. Evidence of payment of processing fees. The fee paid is based on the value of the scheme shares. For the first N5, 000,000.00 (Five Million Naira) worth of the scheme the applicants will pay 0.3% (per cent); the next N5, 000,000.00 (Five Million Naira) will pay 0.225 per cent and any sum thereafter will pay 0.15% to the Commission.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com

WRITTEN BY CHAMAN LAW FIRM TEAM

EMAIL: chamanlawfirm@gmail.com

TEL: 08065553671, 08024230080