The Law of M&A

With businesses around the world severely impacted by the Covid-19 pandemic, many may need a fresh capital injection in the near future. Even before the pandemic, several sectors in the Nigerian economy were primed for an injection. This was to meet regulatory requirements, maximise performance, stay afloat, increase economies of scale, increase market share or diversify the company’s business. As the world recovers and reopens for business, it makes sense to prepare to take advantage of a more investment friendly climate.

In 2019, a new merger control regime was introduced in Nigeria by the enactment of the Federal Competition and Consumer Protection Act (FCCPA). The Federal Competition and Consumer Protection Commission (FCCPC) was established to approve mergers meeting certain thresholds. It is significant to note that the FCCPA provides for the regulation of foreign-to-foreign mergers with a Nigerian component.

The FCCPA categorises mergers as either small or large. While large mergers are required to notify and obtain approval from the FCCPC, small mergers do not require such notification unless the FCCPC determines, within six months of consummation of that merger, that it will hamper competition. The thresholds of the Securities and Exchange Commission (SEC) Rules continue to apply in determining the threshold for mergers, while the threshold for foreign-to-foreign mergers are provided under the FCCPC Foreign-Foreign Guidelines and mirror the threshold for domestic mergers.

The SEC continues to play a role in mergers involving public companies, where it has a duty to ensure that shareholders are fairly and equitably treated.

The NSE must also be notified of any transaction which will result in a change in the beneficial ownership of five percent or more of a public listed company.

The consent of the sector regulator would also be required for qualifying mergers in a regulated industry,for example for banks, insurance companies and telecommunication companies, to name a few.

Clearance from the Federal Inland Revenue Service is advised to ensure that tax liabilities are cleared prior to completion.

The Finance Act 2019 introduced a number of amendments to extant laws that may enhance opportunities for mergers in Nigeria, including exemption from Capital Gains Tax for group restructurings and abolishment of excess dividends tax. These amendments allow more flexibility for transaction structuring in the mergers and acquisitions space.

Where the merger is done via a scheme of merger or arrangement, the Federal High Court would be required to make orders for court ordered meetings and sanctioning the merger.

Resolutions approving the M&A and other applicable documents may need to be filed at the Corporate Affairs Commission upon conclusion of the transaction.

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