Mergers & Acquisitions Under The Investments & Securities Act 2007
Mergers & Acquisitions under the
Investments & Securities Act 2007
29, Marina, Lagos
By Dr. Adeoye Adefulu
The Investments and Securities Act (“new ISA”) was passed into law in June
2007. The Act was enacted to repeal the Investments and Securities Act 1999
(“old ISA”) and to establish the Securities and Exchange Commission (the
“Commission” or “SEC”) as the apex regulatory authority for the Nigerian
capital market as well as regulation of the market to ensure the protection of
investors, maintain fair, efficient and transparent market and the reduction of
systemic risk. The new ISA introduces a number of new provisions in a wide
variety of areas. This paper shall critically examine the provisions of the new
ISA in relation to mergers in comparison with those of the old ISA. The paper
shall attempt to highlight the substantive differences and comment on the
potential impact of these differences on merger transactions in Nigeria.
This is especially important in the light of the recent recent upheaval in the
Nigerian banking industry 1 and the Central Bank of Nigeria’s (“CBN”)
expressed intentions to effectively put 5 “troubled” banks up for sale 2.
Under the old ISA, the M & A provisions were contained in part XI with a
total of 24 sections whereas, in the new ISA, they are contained in part XII
with a total of 35 sections. Whilst the take-over section of the Act
substantially remains the same, a sweeping range of changes have been
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Mergers & Acquisitions under the Investments & Securities Act 2007 Page 2
made in relation to the merger provisions. It may be rightly presumed that
these changes are an offshoot of the recent spate of merger transactions
arising out of the recapitalisation process in the banking and insurance
industries, which signalled some of the inefficiencies that existed under the
previously untested regime.
2. MERGER THRESHOLDS
The most significant inclusion to the new Act is the creation of thresholds
and categories of mergers (See S. 120). Under the said section, the
Commission shall from time to time prescribe –
a) a lower and an upper threshold of combined annual turnover or
assets, or a lower and an upper threshold of combinations of
turnover and assets in Nigeria, in general or in relation to specific
industries, for purposes of determining categories of mergers;
b) a method for the calculation of annual turnover or assets to be
applied in relation to each of the prescribed thresholds.
It states further in subsection (2) that, for the purpose of this part of the Act
a) “a small merger” means a merger or proposed merger with a value
at or below the lower thresholds established in terms of subsection 1
b) “an intermediate merger” means a merger or proposed merger with
a value between the lower and upper thresholds established in terms
of subsection1 (a); and
c) “a large merger” means a merger or proposed merger with a value
at or above the upper threshold established in terms of subsection 1
Pending the time the Commission prescribes the thresholds referred to in
subsection (1) of this section, the lower threshold shall be N500, 000, 000
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 3
(five hundred million naira), while the upper threshold shall be N5, 000, 000,
000 (five billion naira).
3. CONSIDERATION OF MERGERS
Under the provisions of the old ISA, the Commission may only approve a
merger application where it is unlikely to cause a substantial restraint of
competition or tend to create a monopoly in any line of business enterprise
(section 99(3)). The provisions of the new ISA are more robust in relation to
competition considerations. Under section 121, when considering a merger
application, the Commission is required to initially determine whether or not
the merger is likely to substantially prevent or lessen competition. The
determination that a merger is likely to substantially prevent or lessen
competition is not a total barrier to a merger. Where such a finding has been
made, the Commission is required to determine:
1. whether or not the merger is likely to result in any technological
efficiency or other pro-competitive gain, which will be greater than,
and off-set the anti-competitive effects;
2. whether the merger can be justified on substantial public interest
grounds. (section 121(1b) (i) & (ii)).
It should be noted that sub-section 3 of the same section provides the public
interest grounds which must be considered, which include the effect of the
merger on employment and the ability of national industries to compete in
international markets. Further sub-section 2 indicates the factors which the
Commission may take into consideration in determining whether or not a
merger is likely to substantially prevent or lessen competition.
After the anti-competition factors are taken into consideration, the
Commission is also required to determine whether all shareholders are fairly,
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 4
equitably and similarly treated and given sufficient information regarding the
merger (section 121(1d)).
After the Commission makes its initial determination, it may grant an
approval in principle to the merger and direct the merging companies to make
an application to the court to order separate meetings of shareholders of the
merging companies in order to get their concurrence to the proposed merger.
If a majority representing not less than three quarters in value of the shares
of members being present and voting either in person or proxy at each of the
separate meetings agree to the scheme, the scheme shall be referred to the
Commission for approval.
4. MERGER PROCEDURES
Under the old ISA, there was a blanket provision as to the procedure for
mergers irrespective of size. However, under the new ISA, each merger
threshold has its own clearly set out procedure.
A party to a merger of this nature is not required to notify the Commission of
the merger unless the Commission specifically requires it to do so and the
merger may be implemented without approval unless required to notify the
Commission. However, a party to a small merger may voluntarily notify the
Commission of the merger at any time.
It should be noted that within 6 months after a small merger has commenced
implementation, the Commission may require the parties to the merger to
notify the Commission in the prescribed form and manner if in the opinion of
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 5
the Commission, the merger may substantially prevent or lessen competition
or cannot be justified on public interest grounds. At this point, no further
steps can be taken to implement the merger until it has been approved or
conditionally approved. These provisions may present difficulties in practice.
For example, it is unclear how the Commission would become aware of the
merger before its consummation if it is not notified. It may be suggested that
the reasoning behind these provisions was so as not to totally exclude small
mergers from the supervision of the Commission. However as currently
worded, it is unlikely to achieve that purpose.
The Commission is entitled to not more than 60 working days (20 working
days in the first instance and an extension of up to 40 working days) in total
to consider the approval of a small merger. Where the Commission has not
notified the parties within that period, it is deemed to have granted its
approval to the merger.
If the merger is approved by the Commission, the parties shall apply to the
court for the merger to be sanctioned and when so sanctioned, the same
shall be binding on the companies. The court may by the order sanctioning
the merger or by the subsequent order make provision for any or all of the
1. the transfer to the transferee company of the whole or any part of the
undertaking and of the property or liabilities of any transferor
2. the allotment or appropriation by the transferee company of any
shares, debentures, policies or other like interests in that company
which under the compromise or arrangement are to be allotted or
appropriated by that company or for any person;
3. the continuation by or against the transferee company of any legal
proceedings pending by or against any transferor company;
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 6
4. the dissolution without winding up of any transferor company;
5. the provision to be made for any persons who in such manner as the
court may direct, dissent from the compromise or arrangement;
6. such incidental, consequential and supplemental matters as are
necessary to secure that the reconstruction or merger shall be fully and
effectively carried out.
It should be noted that in making an order which includes the dissolution of a
company, the court must be satisfied that adequate provision has been made
for employees of the company to be dissolved.
INTERMEDIATE AND LARGE MERGERS
A party to an intermediate or a large merger must notify the Commission of
that merger in the prescribed form and manner. Under this head, the primary
acquiring company and the primary target company shall each provide a copy
of the notice contemplated above to any trade union that represents a
substantial number of its employees or the employees concerned or
representatives of the employees concerned, if there are no such registered
trade unions. Parties to mergers of this nature shall not implement the
merger until it has been approved, with or without conditions by the
Within 20 working days after all parties to an intermediate merger have
fulfilled all their notification requirements in the prescribed manner and form,
the Commission after having considered the merger in terms of section 121,
may issue a certificate in the prescribed form, approving the merger,
approving the merger subject to any conditions or prohibiting implementation
of the merger. However, the Commission may extend the period for
considering the proposed merger by a single period not exceeding 40 days
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 7
and in that case, it shall issue an extension certificate to any party who
notified it of the merger. If upon the expiration of the 20 days provided
above or the extension period, the Commission has not issued a certificate
referred to above, the merger shall be deemed as having been approved
subject however to revocation as provided by S. 127 of the new Act. The
Commission shall thereafter publish a notice of the decision in a gazette and
issue written reasons for the decision if it prohibits or conditionally approves
the merger or requested to do so by a party to a merger.
After receiving notice of a large merger, the Commission shall refer the
notice to court and within 40 working days after all parties have fulfilled all
the prescribed notification requirements, forward to the court a statement,
whether or not implementation of the merger is approved, approved subject
to any conditions or prohibited.
5. COMMENTS ON MERGER PROCEDURE
The review of the merger provisions of the new ISA suggests that the Act was
drafted with the intent of simplifying the merger process. However, the
inelegant wording of the Act, in addition to the poor structuring of its
sections and sub-sections create an ambiguous position which is likely to
engender confusion or lead to unintended consequences. Some of these
issues are discussed below:
1. Whilst it appears that the intention of the draftsman was to limit the
notification and reporting requirements for small mergers, it does not
explicitly provide for the procedure to be followed in small mergers
without SEC notification. For example section 121(4) provides for an
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 8
application for a court-ordered meeting of shareholders to be made by
the merging entities on the direction of SEC. There is no explicit
provision for an application for a court-ordered meeting of
shareholders made independently of SEC. Additionally, under section
122(6) the merging parties may only apply for a court sanction “if the
merger is approved by the Commission”.
2. The approval timing provisions also create an absurdity. In the
circumstances where SEC notification is required for a small merger
and in all cases of an intermediate merger, the Commission may take
up to a total of 60 working days to issue its approval or otherwise.
However in the case of large mergers, SEC may only take up to 40
working days. In the first part, 60 working days is a significantly long
period for approval of the consummation of a small merger. Secondly,
it defies logic that a large merger, which theoretically should take
more time to investigate, is granted a shorter time for approval.
3. In addition, the Act leaves the process for completion of a large and
intermediate merger silent. Whilst section 122(6) explicitly states what
should happen after the approval of a small merger (a court sanction),
no such provisions exist for large and intermediate mergers. It would
have been sensible for the provisions of section 122(6) to have been
included in a general section such as section 121 to allow its
applicability to all the merger types.
6. OTHER PROVISIONS
In addition to the procedure for merger provisions discussed above, the new
ISA has granted new powers to SEC to break up a company. Under section
128, where the Commission determines that the business practice of a
company substantially prevents or lessens competition, it may order the
break-up of the company into separate entities, in such a way that its
operations do not cause a substantial restraint of competition in its line of
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 9
business or in the market. These provisions grant the Commission powers
which are traditionally held by an Anti-Competition Commission. In the
absence of such a commission in Nigeria, there is value in this power being
held by an entity such as SEC, however, it would have been expected that the
Act would have included more substantive provisions regarding the use of
this power by the Commission, so as to avoid any appearance of abuse.
7. TAKEOVER PROVISIONS
The ISA 2007 requires that a takeover bid be made where a person holds 30
percent or more of the voting rights of a company or where persons acting in
concert hold a minimum of 30% but not more than 50%, with intentions to
acquire more. 3 A takeover bid may only be made after an authority to proceed
has been granted by the Commission 4. An application for an authority to
proceed, must give particulars of the proposed bid and contain such
information and be accompanied by documents or reports as prescribed by
regulation 5. The Commission is required by law to keep the contents of any
application or accompanying documents confidential 6. In considering whether
to grant an authority to proceed, the Commission is required to have regard
only to the likely effect on the economy of Nigeria and on any Federal
Government policy on manpower and development 7.
S ec ti on 131 , ISA 2 007 .
S ec ti on 234 , ISA 2 007 .
S e ct io n 13 4 ( 2 ) , I SA 2 0 0 7. I t is use f ul t o n o t e t ha t t he c u rr e n t S E C R u les d o no t
c o n t a in d e t a i ls o f t he i n forma ti o n o r a cco mpan y in g do cu me nta tio n. In de e d t he
e x p o s u re dr a ft o f th e n ew p ro po s e d ru les does not a d d ress th is is s u e e it he r.
S e c t i o n 134 ( 5) , IS A 20 0 7.
S e c t i o n 134 ( 6) , IS A 20 0 7.
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 10
Where an authority to proceed has been granted by the Commission, an
offeror may prepare a takeover bid, which must be registered with the
Commission 8. Upon registration of a takeover bid by the Commission, the bid
may be despatched by the offeror. The takeover bid must be dispatched
concurrently by the offeror to: i) each director of the offeree company; ii)
each shareholder of the offeree company; iii) the Commission 9.
The ISA 2007 also makes provisions with respect to the process of a bid offer
and how to deal with the issue of dissenting shareholders.
8. FINAL COMMENTS
The new M & A provisions appear to indicate an intention to create a less
tedious and a more competition oriented merger process. They do however
raise considerable ambiguities, which may have a negative effect on M & A
transactions in Nigeria. Indeed, the M & A provisions have not yet been
significantly challenged. If the plans of the CBN regarding the five “troubled”
banks are brought into fruition, it would indeed test the strength of these
This Note is for general purposes and guidance only and should not
be regarded as legal or professional advice. Any questions, comments
or clarifications may be directed to:
Dr. Adeoye Adefulu
Odujinrin & Adefulu
29, Marina, Lagos
S ec ti on 135 , ISA 2 007 .
S ec ti on 138 , ISA 2 007 .
Mergers & Acquisitions under the Investments & Securities Act 2007 Page 11