Structure of Mergers
A merger can be done by; a) purchase or lease of shares, interests or assets in the other company(s), b) by amalgamation or other combination with the other company(s), or c) by a joint venture. Section 92(1)(b) of the Federal Competition and Consumer Protection Act (FCCPA).
A merger may also be horizontal as between companies producing similar goods in the same industry, vertical between companies producing different goods in the same industry or conglomerate as between companies in different industries.
The Legal Framework for Mergers
- The Federal Competition and Consumer Protection Commission (FCCPC) is tasked with the responsibility of approving all mergers according to Section 93 of the FCCPA.
- However, public companies are to comply with the provisions of the Investment Securities Act & Securities and Exchange Commission Rules (SEC Rules) for mergers.
- By virtue of the Joint Advisory and Guidance on Mergers, Acquisitions & Other Business Combinations Notifications of 4th May 2019, all notifications of mergers will be reviewed under existing SEC Rules until the FCCPC establishes regulations in accordance with the Section 93(2) of the FCCPA 2019.
- For Mergers and Acquisitions, companies will also be required to comply with Companies and Allied Matters Act and other sector specific regulations like the Banks and Other Financial Institutions Act, National Insurance Commission Act, etc.
- According to Section 427 of the SEC Rules, merging companies with a value of annual turnover of
N500,000,000 or below are to comply with the Act as small mergers; where the annual turnover value is between N500,000,000 and N5,000,000,000 they are to comply as intermediate mergers and where the value of turnover is at or above N5,000,000,000, the companies are to comply as a large merger.
There is no requirement for small mergers to notify or obtain the approval of the FCCPC unless it otherwise requires Section 95 FCCPA, see also section 424 (1)(b) of the SEC Rules. However, merging parties may voluntarily notify the FCCPC of the merger. Merging parties are to ensure the purpose of the merger is not to gain monopoly or lessen competition.
Where companies fall within the threshold of intermediate/large mergers they should:
- Notify FCCPC in the prescribed notification form, notify trade unions that represent a substantial number of the employees.
- Make an application to court to order separate meetings of shareholders of the merging companies.
- File with the FCCPC a formal application for approval of the Merger attached with relevant documents After formal approval by the FCCPC, make an application to court for an order sanctioning the scheme.
- Comply with post approval requirements. It should be noted that there will be a post-merger inspection by the FCCPC (three) months after the approval of the application
- An acquisition occurs where a person or group of persons buys most (if not all) of a company’s ownership stake in order to assume control of the target company.
- The approval of Acquisitions both for public unquoted companies and private companies is under the auspices of the Securities and Exchange Commission (SEC)
- The acquirer in an acquisition is to apply to the SEC by filing a letter of intent accompanied by relevant documents
- Upon a successful acquisition, submit the Executed Share/Asset Purchase Agreement, and Evidence of Settlement Purchase Agreement, employee and dissenting shareholders’ settlements, to SEC
- SEC will conduct a post-acquisition inspection three months after the approval of the application.
Corporate restructuring requires due diligence, legal drafting as well as other legal services, and filing of documents within prescribed timelines as penalties may be incurred otherwise.
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