The Regulatory Framework Of Mergers And Acquisition

By Oyetola Muyiwa Atoyebi, SAN

MERGERS AND ACQUISITIONS

Mergers and acquisitions (M&A) refer to the process of consolidating companies or their assets. The terms “merger” and “acquisition” are often used interchangeably, but have different meanings.

What Is a Merger?

A merger occurs when two companies agree to consolidate into a new entity. When we say merger, it implies the combination, joining or fusion of two or more formerly independent companies into one organization or company with common ownership and management. Without the coming together of these companies, a merger cannot exist. That is, it is the liquidation of one company that leads to the coming together of these companies, known as merging. For instance, Company A and Company B join to create a new entity, Company C.

One example is the 1999 merger of Exxon Corporation and Mobil Corporation. These two leading oil production companies created a joint entity, Exxon Mobil Corporation. Also, the merging of Diamond Bank and Access Bank in Nigeria.[1]

What Is an Acquisition?

In paragraph 3 of the International Accounting Standard No. 22 (1 As 22), Acquisition is not a uniting of interest. In its most coherent form, an acquisition occurs when a company purchases the assets and operations of another company, allowing the acquired business to retain its legal existence and continue its business with the acquiring company assuming the status of a holding company to the acquired company. However, both definitions (Merger & Acquisition) seem the same, but the distinguishing factor is that whereas there is a fusion in a merger, in an acquisition, both the acquired and the acquirer companies continue in existence. A good example of a merger is the Platinum & Habib Bank which came together to form Bank PHB. Also, an example of acquisition is Access Bank which acquired the former Intercontinental Bank which is now Access Bank Plc.

THE REGULATORY FRAMEWORK ON MERGERS AND ACQUISITIONS

The regulatory framework on mergers and acquisitions refers to the set of laws, rules, and regulations that govern the process of merging two or more companies or acquiring one company by another. This framework is designed to ensure that the process is fair, transparent, and in the best interest of all parties involved, these regulatory bodies/ laws would be itemized below:

1. THE FEDERAL COMPETITION AND CONSUMER PROTECTION COMMISSION (FCCPC)

The Regulatory Oversight for Mergers and Acquisitions in Nigeria is vested in the Federal Competition and Consumer Protection Commission (the ‘Commission’ or FCCPC) by the Federal Competition and Consumer Protection Act 2018 (FCCPA or Act). The FCCPA repealed certain sections of the Investments and Securities Act 2007 (ISA) dealing with the Securities and Exchange Commission’s (SEC) previous regulatory oversight of mergers. The FCCPA makes provision for the creation of the FCCPC. The Commission acts as the competition regulator empowered to prevent and punish anti-competitive practices, regulate mergers, takeovers and acquisitions, and protect regulated industries in every sector and location in Nigeria. It also creates a Competition Tribunal to deal with any disputes and concerns that may arise.[3]

2. THE SECURITIES AND EXCHANGE COMMISSION (SEC)

The role of the SEC under the ISA as amended by the FCCPA in mergers and acquisitions is limited to fairness consideration in the exercise of its primary function as the regulator of the capital market.

Before 2019, the Securities and Exchange Commission (“SEC”) was the primary body responsible for mergers, acquisitions and takeovers of public and private companies in Nigeria. With the enactment of the Federal Competition and Consumer Protection Commission (“FCCPC”) Act 2019, the provisions within the Investment and Securities Act 2007 on mergers were repealed and the FCCPC became the primary body responsible for regulating mergers. Notwithstanding, SEC maintained its rights to regulate mergers and acquisitions affecting public companies on the basis that it is the primary regulator of the capital market in Nigeria.[4]

3. THE CORPORATE AFFAIRS COMMISSION. (CAC)

The Corporate Affairs Commission (“CAC”), established by the Companies and Allied Matters Act 2020 (“CAMA”) CAP C20 LFN 2004, also plays a part concerning corporations that intend to merge. It is the responsibility of the CAC to receive corporate filings and to certify corporate resolutions and the de-registration of any dissolved company that may occur in the merger process. The new CAMA received Presidential assent on August 7, 2020, and came into force on January 1, 2021. [5]

4. CENTRAL BANK OF NIGERIA (CBN)

The Central Bank of Nigeria, as generally called, gets involved in merger and acquisition activity where banking institutions are involved. Any merger that concerns the bank must first get prior approval of the CBN before SEC approval is granted. In 2005, as a result of the directive given by CBN to banks to increase their share capital to N25 billion within 18 months from the previous share capital of N2 billion, many banks merged to establish a single bank. For example, the United Bank of Africa PLC merged with the defunct Standard Trust Bank PLC.

On August 3, 2021, the CBN issued the Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria (“PSHC Guidelines”), wherein provisions, as to control, were provided. Paragraph 4 of the PSHC Guidelines states that prior approval of the CBN shall be obtained for any shareholding of 5% and above, or any change in ownership that results in a change in control of the payment service holding company (“PSHC”). Furthermore, where such shares are acquired through the secondary market, the PSHC shall apply for approval from the CBN within seven days of the acquisition.

5. THE NIGERIAN EXCHANGE LIMITED (NGX)

The Nigerian Exchange Limited (“NGX”) is a self-regulatory body that runs the exchange for trading in shares. Quoted companies must meet the listing rules on merger transactions. Listed companies are required to submit to the NGX drafts of all circulars issued by the company to its shareholders; they are also required to disclose any conflict-of-interest issues between directors of merging companies. In addition, a listed company may have to be delisted due to a merger.[6]

6. THE FEDERAL HIGH COURT (FHC)

The Federal High Court (FHC) also acts as a relevant judicial authority in merger control. Section 251 of the 1999 Constitution (as amended) of the Federal Republic of Nigeria gives the FHC the power to handle matters concerning companies’ operation, management and regulation. The FHC makes orders for shareholders’ meetings to consider arrangement/compromise schemes that involve the transfer of shares. In addition, there are some sectoral merger regulatory authorities which may be involved depending on the business of the company. For instance, the National Insurance Commission (“NAICOM”) would be a merging authority where the entity/entities involved is/are an insurance company and the Nigerian Communications Commission (“NCC”) for the telecommunications industry.[7]

7. 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. It is responsible for ensuring that all taxes due or payable by the merging companies are fully recovered. So, it is advisable that merging companies bring the merger proposal to the FIRS for evaluation.

CONCLUSION

Mergers and Acquisitions (“M&A”) are a veritable source of business combinations in any thriving economy. They are arguably the most famous external corporate restructuring tools employed by companies globally to achieve growth and maximize profitability. It is on this note several regulatory bodies and Acts are being made to govern the affairs of the company during such corporate restructuring. It is worth noting that a company must adhere to these strict regulations in its process of Merging/Acquiring.

SNIPPET

• Mergers and acquisitions (M&A) refers to the process of consolidating companies or their assets. The terms “merger” and “acquisition” are often used interchangeably, but have different meanings.
• In paragraph 3 of the International Accounting Standard No. 22 (1 As 22) Acquisition is not a uniting of interest.
• The regulatory framework on mergers and acquisitions refers to the set of laws, rules, and regulations that govern the process of merging two or more companies or acquiring one company by another.
• The Regulatory Oversight for Mergers and Acquisitions in Nigeria is vested in the Federal Competition and Consumer Protection Commission (the ‘Commission’ or FCCPC) by the Federal Competition and Consumer Protection Act 2018 (FCCPA or Act).

KEYWORDS

Merger, Acquisition, Regulations, Corporate restructuring, Company,

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Corporate Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng   

CONTRIBUTOR: Lilian Eku

Lilian is a member of the Dispute Resolution Team at OMAPLEX Law Firm. She also holds commendable legal expertise in Corporate Law Practice.

She can be reached at lilian.eku@omaplex.com.ng

[1] Harvard business law.

[2] Academia.edu.

[3] ICLG.com

[4] Seun Timi-Kolelu & Eustace Aroh; Regulatory Update- Revised Rules On Mergers,Acquisitions and Take-Overs in Nigeria.

[5] Resolutionlawng.com

[6] ICLG.com

[7] ICLG.com