A Company for the purpose of growth and development can take a decision to restructure its outlook. This restructuring can be done not just on the outlook of the company but also on the operational capacity of the company. The need for Corporate Restructuring could arise as a result of the company’s desire to reorganize its operational structure to achieve greater growth in the economic scale or as a result of the downward financial meltdown of the company thereby restructuring to remain in business.

Corporate Restructuring provides a range of options by which a growing or failing company can explore from such as Arrangement & Compromise, Take Over, Management Buy-out, Merger & Acquisition etc. Merger and Acquisition which is the focal point of this article is one of the frequently used options available to a company for addressing business concerns and enhancing the profitability of a business.

Definition of Merger and Acquisition

Merger and Acquisition have become very relevant in both the National and International contemporary business environment.

A merger is the business combination of two separate entities combining force in equal terms to evolve into a joint corporate entity. The joint company when merged acquires a new identity or retains the identity of one of the companies, while Acquisition takes place where a company (most practical cases a larger company) acquires all or substantial interest in another (a smaller) company. In acquisition, a new company does not emerge when interest is acquired rather in most cases the acquired company ceases to exist and its assets become a part of the acquiring company or the acquired company becomes a subsidiary of the acquiring company.

Are there Benefits to this option of restructuring?

Merger and Acquisition is a widely known and acceptable method of carrying out business in Nigeria today and also restructuring a company; there are plethoras of benefits attached to it. The common aim of all companies that explore the option of merger or acquisition is to create a synergy that makes the business combination greater in value than the sum of the two parts of the company.

Some of these benefits include the following:

It is often the preferred way for foreign investors to venture into the Nigeria business market or gain entrance into the Nigerian market. For example, SABMiller bought Pabod breweries, Port Harcourt, where it owns 57% and Voltric Lagos where it owns 80% respectively. Also in 2011, SABMiller acquired the majority share in the international breweries Ilesha, manufactures of Trophy larger and also took control of the ownership of Hero.

Companies use Merger and Acquisition to grow in size rather than waiting for years to double the size of the company, they can harness the facility of the other company to achieve the desired growth.

Are there Alternatives to Mergers and Acquisition?

The procedure for merger and acquisition in growing a business could be challenging and filled with risk as it is not always straightforward to fused two different corporate structures into one. For this reasons, some companies look out for other alternative means to grow their businesses.

We are going to briefly talk about a few of these alternatives to merger and acquisition as an option for corporate restructuring.

  • Franchise: they are strategic alliances that companies seeking growth can explore. If a company has developed a product or service, it can grow by selling a franchise to another company, for the purpose of expanding its business using capital and resources of the franchise while exercising control over the brand.
  • Innovations: a company seeking alternatives for growth can invest in innovating internal capabilities of manpower to enhance internal business development on the growth of product and services.
  • Partnership: companies looking to grow their business can rely on strategic partnerships for the objective of global expansion. The companies would map out a partnership agreement stating their obligations and objectives and provide for termination if the partnership fails. This option is flexible and less risky.
  • Joint venture: companies can explore the alternative of joint venture arrangement where two companies can develop a new entity for their mutual benefit. They both maintain their separate entity and stand no risk of losing their identities. It provides a company with an option to enter a business with less financial commitment if it were to do it on its own.

Laws that govern Merger and Acquisition in Nigeria

The principal law that governs the merger and acquisition in Nigeria is the Investment and Securities Act (ISA) 2007. Pursuant to the provisions of the ISA, the key regulator for Merger and Acquisition is the Securities and Exchange Commission (SEC) Rules. The Act under Section 118 (1) states:

“not withstanding anything to the contrary contained in other enactment, every merger, acquisition or business combination between or among companies shall be subject to prior review and approval of the commission”

The function of SEC is to regulate the capital market operators, grant pre-merger consent, clear merger scheme documents, approve mergers and ascertain whether the merger would give rise to competition concerns or create a monopoly in any line of business enterprise.

Apart from ISA, we also have Companies and Allied Matters Act (CAMA), Banks and other Financial Institution Act (BOFIA), SEC Rules 2013 and SEC Code of Corporate Governance among other relevant laws.

Other Regulatory Authorities that Regulate Mergers and Acquisitions

Merger and Acquisition are most common in the technology sector, financial, healthcare, consumer goods and retail sectors. Each sector has its own specific legislation and regulatory bodies that govern them in terms of merger and acquisition.

  • 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 N2billion, many banks merged together to evolve a single bank. For example include, the United Bank of Africa PLC merged with the defunct Standard Trust Bank PLC.
  • Federal High court of Nigeria: the Federal High Court regulates merger by ordering the shareholders and members of the merging companies to hold meetings and also sanction the merger particularly as it relates to transfer of assets, dissolution without winding up, which becomes effective from the day the order is given.
  • 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.
  • Corporate affairs commission (CAC): all companies are subject to the authority of the CAC. At the CAC, the filling and certification of the corporate resolutions and documents to be filed by the merging companies are done at the CAC. CAC is also responsible for registering merger notice and approval documents.

Procedure for processing the application of Merger and Acquisition

There are three thresholds of a merger as defined by SEC, which is determined by the value of combined assets of the merging companies. Each of these categories has similar procedures for application. These are:

Small Merger: the lower threshold is based on the combination of assets and turnovers of below N1, 000,000,000.00 (One Billion Naira). Under this threshold, the merging companies need not to notify SEC. But practitioners are of the opinion that it is advisable to inform SEC to avoid a potential regulatory risk that would be involved.

Intermediate Mergers: This involves the threshold of a combination of both assets and turnovers between N1, 000,000,000.00 (One Billion Naira) to N5, 000,000,000.00 (Five Billion Naira).

Large Mergers: This involves combination of assets above the threshold of N5, 000,000,000.00 (Five Billion Naira)

Procedure for Merger under the Securities and Exchange Commission Rules SEC Rules 2013 can be summarised into the following steps:

  • Parties to the merger will prepare a merger proposal document between the merging companies after conducting legal and financial due diligence such as ownership of the business, employees, accounts of the company, tax liabilities of the company, values of assets and liabilities, product development and competitors etc on the target company and bidding company.
  • Parties shall file a pre-merger notification to the Office of the Director General at SEC within 6 weeks with the scheme documents for review and where there is any deficiency it will be communicated to the applicant. The documents to be submitted are as follows:
  1. Letter of intent to merge by the companies.
  2. Extract of board resolution of the merging companies duly certified by the Director and the Company Secretary.
  3. Signed and notarized consent letters of Directors and parties to the merger.
  4. Information Memorandum showing a brief history of the merging companies, objectives of the merger, financial information including balance sheet, profit and loss account, list of competitors of the merging entities, authorised share capital, directors’ beneficial interest and list of shareholders with their percentage shareholdings.
  5. 2 hard copies of merging scheme document and an electronic copy
  6. Copies of letters informing the trade union of the relevant industry of the intention of companies to merge
  7. Copies of the Certificate of Incorporation of the merging companies certified by the Company Secretary.
  8. A letter appointing a financial Adviser (s) and a draft of financial service agreement between the merging companies and their financial advisers.
  9. Certified true copies of the relevant CAC Forms showing share capital, return of allotment (Form CAC 2.1), particulars of Directors (Form CAC 7).
  10. A letter of no objection from the company regulators where it is applicable
  11. Evidence of payment of N50, 000.00 (Fifty Thousand Naira) merger notification fee per merging company.
  12. Evidence of payment of processing fees. The fee paid is based on the value of the scheme shares. For the first N5, 000,000.00 (Five Million Naira) worth of scheme the applicants will pay 0.3% (per cent); the next N5, 000,000.00 (Five Million Naira) will pay 0.225 per cent and any sum thereafter will pay 0.15% to the Commission.
  • The merging companies will file an application to the Federal High Court for an order directing the holding of a court-ordered meeting of the members of the merging companies where the scheme will be considered by the shareholders and resolved by special Resolution. The scheme will also be submitted to the trade union of the industry of the merging companies.
  • After the special resolution is passed, a formal application will be filed for approval at SEC with the relevant documents for formal approval of the merger. The documents to be filed are:
  1. Copy of Court order convening the meeting
  2. Copies of executed scheme documents by parties to the scheme and evidence of dispatch of scheme documents to the shareholders of the merging companies.
  3. Copies of executed financial services agreement
  4. Extract of the executed resolutions passed at the separate shareholders’ meetings
  5. Evidence of clearance letter from the Federal Inland Revenue Service (FIRS) regarding tax liabilities of the companies.
  6. Any agreement entered into with a trade union of the industry if any
  7. An amended copy of the Memorandum and Articles of Association of the resultant company where applicable
  8. Form SEC 6 (registration of Securities) if any.
  9. No application fees are paid at this stage.
  • SEC will consider the application within 20 days of the submission or the commission can extend the period not exceeding 40 working days where there is an extension, SEC would issue a Certificate of Extension to the applicant.
  • Where SEC approves of the merger, it would issue a Certificate indicating its approval of the scheme wholly or with conditions. The notice of its decision is published in a gazette and with it a reason for its decision to approve the merger or prohibit it. SEC also informs the Court by a written statement of its approval, its prohibition or approval subject to conditions. Where the court sanction the scheme and a copy of the court order will be published in a national newspaper.
  • Post-approval compliance of the merging company will involve them filing at SEC within 2 weeks with the following documents:
  1. A copy of the court order sanctioning the scheme within 7 days of the order of registration of the scheme
  2. A copy of the newspaper publication
  3. A statement of the actual cost of the scheme
  4. A report of the completion of the exercise within 3 months containing the following arrangements:
  5. Arrangement relating to the employees of the dissolved company
  6. Settlement of shareholders of the dissolved company
  7. Utilization of money injected into the company
  8. The general implementation of the merger
  9. Report on share adjustment where applicable.
  10. No fees are paid at this post-approval stage.
  • Applicants should also be aware that there will be a post-merger inspection by the commission within 3 months after approval to ascertain the level of compliance and see how the new company is faring.

Revocation of Merger

The Securities and Exchange Commission is empowered under Section 127 of Investment and Securities Act 2007 to revoke its decision on approval or conditional approval if the information supplied by the applicant is incorrect, the approval was obtained by deceit or there has been a breach of an obligation attached to the merger by any of the merging company.

Procedure for Acquisition

As earlier stated Acquisition occurs where an individual or a company buys all or a substantial interest of a company’s ownership in order to assume control of the target company. The aim of the “Acquirer” is to invest and take control of the target company.

The procedure for Acquisition under Rule 434 of the SEC Rules 2013 is as follows:

  • The acquirer is to file a letter of intent accompanied with the following documents at the Commission within 60 days:
  1. Two draft copies of the information memorandum of the proposed acquisition.
  2. Extracts of board resolution of the Acquirer and Target Company agreeing to the acquisition of the target company.
  3. A certified true copy of the Memorandum and Article of Association of the Acquirer and Target Company.
  4. Certificate of Incorporation certified by the company secretary of both companies.
  5. A copy of “NO OBJECTION” Letter from the relevant regulatory body where applicable
  6. Certified true copy of Form CAC 7 (Particulars of Directors) and Form CAC 2 (authorised share capital) of both companies
  7. Share purchase agreement executed between the Acquirer and Target Company
  8. Evidence of payment of N50, 000.00 (Fifty Thousand Naira) application fee.
  9. Evidence of payment of relevant fees on the total value of shares being acquired. First N5,000,000.00 (Five Million Naira) worth of scheme will pay 0.3% (per cent); the next N5,000,000.00 (Five Million Naira) will pay 0.225 per cent and any sum thereafter will pay 0.15% to the Commission
  10. Annual reports and accounts of both companies for the preceding 5 years of operation before the acquisition.
  11. Sources of funds to finance the acquisition and will be backed by documentary evidence.
  12. The financial service agreement between the acquirer and Target Company and their relevant financial advisers.
  13. Report on the valuation of shares and assets of the target company.

After No Objection is granted, the acquiring company will file a report of compliance and terms of approval within 3 months. The report will be submitted with these documents.

  • Executed share and asset purchase agreement
  • Evidence of settlement of purchase consideration
  • Evidence of severance benefits for employees that may lose their jobs as a result of the acquisition
  • Evidence of settlement of dissenting shareholders
  • Newspaper publication of the acquisition
  • There will also be a post-acquisition inspection 3 months after approval of the acquisition.


The Nigerian Business environment is not a stranger to merger and acquisition. As enunciated above, merger and acquisition strategy is a reliable way for business growth and expansion of a company’s production capacity in a surviving or evolving entity. It has been a major strategy employed in the modern business environment for competitive merits.

It important to point out that the companies merging would be restrained by the commission where the merger would cause substantial restraint of competition or monopolise any line of business. So the purpose of a merger should be for investment and not to monopolise a business environment.

At any stage of a business combination or merger, Compliance with the Law is very important. There are penalties for companies who fail to comply with the provisions of SEC.

Written by the Commercial & Corporate Law Department at Resolution law Firm, Nigeria

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