THE LEGAL FRAMEWORK AND PROCEDURE FOR MERGER IN NIGERIA

BY MICHAEL NWOGBO, BEING ASSIGNMENT SUBMITTED FOR COMPANY

LAWII (LAW 504)

INTRODUCTION
This paper discussed the legal framework and procedure for merger in Nigeria starting with
the various laws governing merger. The major laws were examined along with sector
specific rules first part and the procedure for effecting merger in the second part.

MERGER
S.119 of ISA 2007 defines merger as the amalgamation of the undertakings or any part of the
undertakings or interest of two or more companies and one or more bodies corporate.

Simply put, a merger is a form of business combination whereby two or more companies are
joined together with one being voluntarily liquidated by having its interest taken over by the
other and its shareholders becoming shareholders in the other enlarged surviving company.

LAWS THAT GOVERN MERGERS NIGERIA

THE MAIN LAWS

The principal legislation regulating mergers and acquisitions in Nigeria are:

Investment and Securities Act 2007 ("ISA"),

Rules of the Securities and Exchange Commission 2013 made pursuant to the ISA
("SEC Rules"),

Companies and Allied Matters Act, Chapter C20, Laws of the Federation of Nigeria
2004 ("CAMA")

Rule Book of The Nigerian Stock Exchange (applicable to listed public companies).

The Companies Income Tax Act 2007 (as amended)

Federal Inland Revenue Service's direction and clearance with respect to any capital
gains tax that may be due and payable. Federal Inland Revenue Service (FIRS): no
merger and acquisition can take place without the prior direction and clearance from
the Federal Inland Revenue Service especially in respect of capital gains tax.
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Federal Competition and Consumer Protection Act 2018 ("Competition Act"),

In this respect, it is important to note that the approval of the FCCPC, in addition to
the relevant sector regulator, would need to be obtained prior to implementation of the
proposed merger or acquisition.

FCCPC's decisions on competition and consumer protection matters take precedence over
the relevant sector regulator and it is empowered to hear and determine appeals or requests to
review the exercise of power of any sector regulator.

SECTOR SPECIFIC LAWS

There are also sector-specific laws applicable to target companies operating in certain
industries. Some of them include the following:

 The Banks and Other Financial Institutions Act 1991 (as amended),
 The Central Bank of Nigeria Act 1991 (as amended)
 CBN Procedures Manual for Applications for Bank Mergers/Take-overs, 2004 (as
updated) for mergers and acquisitions activity in the banking and financial services
sector.
 The Nigerian Communications Act 2003 regulates the telecommunications, media
and technology sector.

 The Electric Power Sector Reform Act 2005 regulates the power sector.

 The Insurance Act 2003 regulates the insurance sector.

 The Petroleum Act, Chapter P10, Laws of the Federation of Nigeria, 2004

 Nigerian Oil and Gas Industry Content Development Act regulates the oil and gas
sector.

These laws require that the prior approval of the sector regulator be obtained where there is a
merger/acquisition of a specified percentage in a company operating in the sector

PROCEDURE FOR MERGER IN NIGERIA

Mergers go through many stages and process to satisfy the stringent conditions imposed by
various laws governing mergers. This is because other various interests and the effects of
merger in the economy of the country.

The procedure for merger has been carefully set out here to provide the essentials. Section
120 of ISA 2007 sets out thresholds for mergers follows :

SMALL MERGER: the lower threshold below: N500,000.00.

INTERMEDIATE MERGER: between lower and upper threshold: N500,000.00 and
N5, 000,000,000.00
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LARGE MERGER: above N5, 000,000,000.00(Above five billion naira)

METHOD OF MERGER CONSIDERED

We shall consider here intermediate and large merger as provided for in S.123(1) of ISA

Small merger is not considered here because subject to little or no regulation if it is

seamless. Parties to a small merger are not required to inform SEC of their merger but may
voluntarily do so general public

MEMORANDUM OF UNDERSTANDING (MOU)

Preliminary discussions for merger between companies begin with the companies signing a
Memorandum of Understanding (MOU). This is usually done during negotiation and before
the Securities and Exchange Commission (SEC) gets involved.

Key agreements are usually signed between the parties to cover confidentiality and due
diligence and other essential areas.

PRE MERGER NOTICE

Pre-merger notice is required to be given to SEC under SEC Rules and Regulations. This
notice is filed along with the following documents:

Both companies will make an application to SEC as pre-merger Notice attached with the
following documents among others:

i. Complete merger Notification Form

ii. A letter of intent signed by the merging companies
iii. Board resolutions of the merging companies supporting the merger.
iv. A copy of the letter appointing the financial adviser
v. Letter of no objection from the companies regulators (e. g CAC, Central Bank
of Nigeria ("CBN") etc).
vi. The audited account of the companies for the last 5 years.
vii. A copy of the Memorandum and Article of Association of the merging
entities.
viii. A detailed information memorandum of the proposed transaction including all
the background studies relating to the merger, and justification for it.

The sec will consider the notice and if satisfied will grant formal permission for a formal
application to be made.

MERGER DOCUMENT
After preliminary approval of SEC preparation of merger documents to produce the scheme
containing the agreed an negotiated terms of the merger.
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The professional advisers that assist in the preparation of the merger document include:
Investment banks / financial advisers
Accountants
Solicitors
Auditors
Reporting Accountants
Registrars
Stockbrokers

Regulatory bodies are consulted for their clearance, FIRS, The Stock Exchange

Make an application to court to order separate meetings of shareholders of the merging

companies. S121(5)

The merging companies will file an application to the Federal High Court for an order
directing the holding of a court-ordered meeting of the members of the merging companies
where the scheme will be considered by the shareholders and resolved by special Resolution.

The scheme will also be submitted to the trade union of the industry of the merging
companies.

MEETING OF SEPARATE COMPANIES

In consonance with S.121(5) the companies will hold separate meetings to approve the
merger and that the scheme will be referred SEC for approval.

Small merger is not required to notify SEC by virtue of S. 122(2) of ISA

The Board of Directors of the two Companies and the Companies will pass separate
Resolution for Merger

APPROVAL OF SCHEME BY SHAREHOLDERS

S.118(1) provides that Shareholders approval of the scheme will still be subject to SEC
approval.

A majority representing not less than three quarters in value of the shares of members being
present and voting either in person or by proxy at each of the separate meetings should pass a
resolution agreeing to the scheme.

FORMAL APPLICATION
The Issuing House usually files with the Commission a formal application for approval of the
Merger attached with the following documents among others:
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i. Extract of the minutes of the court ordered meeting of the merging companies
in support of the merger duly certified by the director and company secretary.
ii. 2 copies of the scheme document duly signed by the parties to the merger.
iii. Evidence of the executed resolutions passed at the separate court ordered
meetings.

Scrutineers report showing the result of voting and total number

CONSIDERATION BY SEC FOR APPROVAL

S.121(5) requires the review and approval of SEC .

S.121(1) provides for SEC to consider and review the scheme taking into account the effect
and impact of the merger on:
Competition.
Public policy grounds
Fair and equitable treatment of shareholders
Majority of three quarters of the shareholders voted and agreed with the scheme.

SEC shall also consider the effects of the merger on the industrial sector, or region,
employment, survival of small businesses, national and international market among other
considerations.

SANCTION OF SCHEME BY COURT

S.122 (6) of ISA provides that after formal approval by the Commission, the parties re
required to make an application to court for an order sanctioning the scheme.
If a scheme is approved by the Commission and sanctioned by the court it shall become
binding on the companies and the court will by the order sanctioning the scheme provide for
the following:

Transfer to the transferee of property and liabilities.

Allotting or appropriation by Transferee Company of shares, debentures, policies or other

like interests.

Continuation by or against the transferee company of any legal proceedings pending.

Dissolution, without winding up, of any transferee company.

An order for dissolution or winding up of transferee company shall not be made unless:

Whole of undertaking and the property, assets and liabilities of the transferor company are
transferred into the transferees company

Court is satisfied of adequate provision by way of compensation or otherwise have been

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made with respect to the employees of the company.

ACQISITION OF DISSENTIENTS’ SHARES

Provisions are made for dissenting shareholders. There are some shareholders of the target
company who may not consent to acquisition scheme of their company, and thus decline to
surrender their shares for purchase by the company.

S.129 of ISA empowers the company to acquire the shares of dissenting shareholders under
some conditions.

CONCLUSION
From the above it is can be seen that we have a regime of various laws governing merger in
Nigeria, the main laws and sector specific laws. The procedure for merger had been
highlighted to reflect the essential stages in the procedure of effecting mergers in Nigeria.

18TH JUNE 2020