Still on the Merger and Acquisition series.
Mandatory Acquisition under the ISA
The extant ISA(unlike its predecessor) contains a mandatory take-over provision in Section 131. Below is an analysis of it.
Section 131 (1) ISA 2007 provides that:
“Where any person:
a. acquires shares, whether by series of transactions over a period of time or not, which (taken together with shares held or acquired by persons acting in concert with him) carry 30 per cent or more (or any lower or higher threshold as may be prescribed by the commission from time to time) of the voting rights of a company; or
b. together with persons acting in concert with him, holds not less than 30 per cent but not more than 50 per cent (or a lower or higher threshold as may be prescribed by the commission from time to time) of the voting rights and such person or any person acting in concert with him, acquires additional shares which increase his percentage of the voting rights, such person shall make a takeover offer to the holder of any class of equity share capital in which such person or any person acting in concert with him holds shares”.
Section 131 above (mandatory offers provisions) is one of the innovations introduced in ISA 2007. That section places an obligation on a person who either acquired up to 30 per cent or more of the voting rights of a company alone or in concert with others to make a mandatory offer to buy the shares of other shareholders in the class of shares that he has bought the 30 per cent or more shares.
In the same token, if a person alone or in concert with others already has up to 30 per cent but not more than 50 per cent of the voting rights, but subsequently acquires additional shares that would increase his voting rights, he is also obliged to make a mandatory offer to buy the shares of other shareholders of the same class of equity where he made additional investment.
The purpose of section 131 ISA 2007 is to give other shareholders an opportunity to exit a company in the event of change of control presumed to occur upon acquisition of set threshold of between 30 per cent and 50 cent of shareholding of a quoted company by any person acting alone or in concert.
The Nigerian section 131 ISA 2007 seem to follow the London City Code in its blanket insistence that any additional acquisitions that increase the voting power of a substantial shareholder beyond the threshold must result in a general offer being made to all other shareholders. However, it is to be noted that under the London City Code, the Takeover Panel has the right to grant dispensation from the mandatory offer obligation under Rule 9.1 in some circumstances.
Although, the Nigerian Section 131 ISA 2007 did not specifically provide for right to grant dispensation from the mandatory offer obligation, one can take a clue from other jurisdiction and indeed it will not be out of place for an investors who is confronted by challenges revolving around section 131 ISA 2007, to explore the following options.
• Seeking the commission’s waiver by way of special dispensation from section 131 obligations; this to be done even before the entry into a share acquisition transaction that would trigger mandatory takeover offer obligations;
• Where threshold is already exceeded unknowingly, seek the commission’s ratification of the transaction through waiver of mandatory takeover requirement upon approval of shareholders at a general meeting which approval could be proposed to SEC as condition for receiving its ratification.
Again, there is no reason why SEC cannot by issuance of guideline of rules create the exception for acquisition, even such acquisition is over set threshold of 30 or 50 per cent as the case may be.