Several weeks ago we started defining the frontiers of mergers and acquisitions in Nigeria. We started by discussing what a merger is within the Nigerian context, then we adumbrated the types of merger, the difference  between mergers and acquisition and the raison d’etre for most mergers. You can find all that here. We moved the discourse further in the second week to fully discuss some of the regulatory bodies that are involved in the process of companies merging. You can find all that discourse here.
This is the last part of the dissertation were we will be discussing the procedure for mergers under the Investment and Securities Act 2007 (“ISA”) and the Securities and Exchange Commission (“SEC”) Rules made pursuant to the Act. Sequel to understanding the procedure for mergers is understanding the classifications and thresholds of mergers under the Act. So we will start this part of the dissertation from there.
Classifications and Thresholds
The procedure for merger is determined by the threshold in which the merger falls under. Under the provision of Section 120 ISA, there are three categories of threshold for merging companies in Nigeria. They are small mergers which threshold is pegged at below five hundred million naira, intermediate mergers which threshold is pegged at above five hundred million naira and below five billion naira, while large mergers is above five billion naira. Suffice it to say that, that was the old position before 2010. Under the new SEC Rules 2010 (as amended), the threshold for small mergers is below two hundred and fifty million naira[1] while that of intermediate mergers is between two hundred and fifty million and five billion naira. Then large mergers have a threshold of above five billion naira and above. Note that thresholds are measured by an aggregation of the combined assets or turnover of the companies involved.
Procedure For Small Mergers
First it is important to state that for small mergers by virtue of the provisions of S. 120 ISA 2007, the merging parties are not required to notify SEC. But under the new SEC Rules, the parties are required to inform SEC after concluding the merger scheme. This new rule would ordinarily mean that it is prudent for the parties to inform SEC of its merger process even from the outset.
1.                   The merging companies meet separately and each secures a resolution of three-quarters of the members companies approving the merger.
2.                   The two companies meet and go into an agreement in principle culminating in the signing of a Memorandum of Understanding;
3.                   The parties begin the process of due diligence where the merging companies search into each others affairs;.
4.                   Obtain a Letter of No Objection from the relevant regulatory body (CBN for banks, NAICOM for Insurance companies, National Broadcasting Commission for broadcasting companies, Nigerian Communications Commission for telecommunication companies, Nigerian Electricity Regulatory Commission for power companies, etc.);
5.                   Reach a Merger Agreement where there is no objection from the relevant regulator;
6.                   Inform SEC of the business combination as a required by Rules.[2]
By virtue of the provisions of S. 122 ISA 2007, the process of a small merger, where SEC is notified, is as follows:
1.       Where parties intend to notify SEC or required by SEC to be notified, the merging parties do so by a Pre-merger notice (or any other statement in lieu);
2.       SEC is to consider the notification within 20 days of the submission of such notifications or it may extend the period within which it will consider the merger by a single period not exceeding 40 working days in which case it must issue a Certificate of Extension;
3.       After having considered the merger within the requirements of  Section 121 ISA 2007 (which deals with the prevention or lessening of competition likely to be caused by a merger), SEC shall notify the parties in a prescribed form, of its
i.                     Approval of the merger,
ii.                   Approval  of the merger subject to condition(s),
iii.                  Prohibition of the implementation of the merger, if has not been implemented
iv.                 If it has already been implemented, a declaration that the merger is prohibited;
4.       Upon the expiration of the 20 working days or the expiration of the extension period, as the case may be, if SEC has not notified the parties of intention, the merger will be deemed to be approved;
5.       SEC shall publish a notice its decision in the official gazette and issue written reasons for the decision if it is prohibited or if it conditionally approves of it or if its requested to do so by a party to the merger;
6.       If the merger is approved, the parties shall apply to the Federal High Court to sanction the merger once this is done it becomes binding on the parties and effective. By virtue of  Section 122(6) of the ISA, the sanction may make provision for any of the following matters:
i.    The transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;
ii.   The continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;
iii.  The dissolution, without winding up, of any transferor company;
iv.  The provision to be made for any persons who in such manner as the court may direct, dissent from the compromise or arrangement; and
v.   Such incidental, consequential and supplemental matters as are necessary to ensure that the restructuring or merger shall be fully and effectively carried out.
There seem to be radical difference in the process outline where SEC is involved from the outset and where it is not. But in reality, the both processed are fused where SEC is involved. Because even where SEC is involved from the outset, the companies will still need to go into an agreement in principle, shareholders odf the companies will still need to pass a special resolution agreeing to the scheme and they would still need to obtain a letter of No Objection. However where SEC is not involved from the outset the process is less cumbersome. Even at that, as we have pointed out before the companies would still need to inform SEC at the conclusion of the process. This will enable SEC carry out some regulatory activities especially its responsibility under Section 122 ISA.[3]
That’s all we got space for this week. Next week we’ll continue the discussion on the procedure for the other types of mergers. Join us then.
Thank you!

[1]That is about $1.7million.
[2]See Rule 233 of SEC Rules.
[3]That is the anti-monopoly anti-competition regulation by SEC.

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