Merger and Acquisition in Nigerian Banking Industry by fsq79985

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                    Presented by

            MR. FEMI OLUBANWO


                   Cell phones: +234 803 411 5000


                    Organised by


                 February 14 2008


(1) Introductory Perspectives

The Nigerian financial services sector has recorded tremendous growth in recent
years and forecasts indicate that this trend will continue for some time to come.
This growth and the increasing confidence in the Nigerian capital market largely
stem from considerable improvements in the regulation of trading and operations
in the market.

One of the regulatory measures successfully contrived for engineering
improvements in the financial services sector is the imposition of minimum
capital requirements for operators in the banking and insurance sectors. This was
done in a bid to strengthen and reposition these financial services providers in
Nigeria to cope with increasing global competition and other challenges
occasioned by globalisation.

The Governor of the Central Bank, Prof. Charles Soludo in his speech delivered
on 6th July 2004 at the Central Bank of Nigeria Offices in Abuja said that:

             “The inability of the Nigerian banking system to voluntarily embark on consolidation
            in line with the global trend has necessitated the need to consider the adoption of
            appropriate legal and supervisory frameworks as well as comprehensive incentive package
            to facilitate mergers and acquisition in the country as well as crisis resolution option and
            to promote the soundness, stability and enhanced efficiency of the system.”

He subsequently directed, pursuant to powers enshrined in Section 9 of the Banks
and Other Financial Institutions Act Cap B3 Laws of the Federation of Nigeria
(―LFN‖) 2004 that banks operating in the country raise their capital 2 from the
then minimum capital requirement of N2 billion to N25 billion by December
2005. As an incentive to ensure compliance with the directive, the CBN helmsman
added that ―only the banks that meet the requirement can hold public sector
deposits and participate in the Dutch Auction System (DAS) 3 by the end of

In the same vein, the Honorable Minister of Finance and the National Insurance
Commission, in September 2005, pursuant to the powers conferred on them by
Section 9(4) of the Insurance Act No.1 2003, directed companies engaged in
General Insurance business to raise their minimum capital base from N200

  Shareholders’ funds
  A bidding process in which the asking price is lowered gradually until someone places a qualifying bid. Its objective is to enhance
transparency in foreign exchange transactions, conserve Nigeria’s foreign exchange resources through the achievement of a realistic naira
exchange rate which will minimize the incidences of round tripping and capital flight as well as make goods produced in the domestic
economy competitive with their imported counterparts.
million to N3 billion. Those carrying on Life Insurance business were directed to
raise their capital from N150 million to N2 billion. Furthermore, companies
engaged in Reinsurance business were required to shore-up their capital from
N350 million to N10 billion.

(2) What are the new capital requirements for Operators in the Capital

       Following the considerable success of the recapitalization exercise in the
       banking sub-sector and the fairly commendable achievement in the Insurance
       sub-sector, the Honorable Minister of Finance in April 2007, approved a new
       capital base for capital market operators. These thresholds are as follows4:

                         CAPITAL                                             OLD            NEW
                         MARKET                                           CAPITAL       MINIMUM
                         OPERATOR                                                        PAID UP
                  1      Issuing Houses                           N150 million           N2 billion
                  2      Broker Dealers                            N70 million           N1 billion
                  3      Clearing and                             N500 million           N1 billion
                  4      Registrars                                N50 million         N500 million
                  5      Underwriters                             N100 million           N2 billion
                  6      Fund/Portfolio                            N20 million         N500 million
                  7      Corporate Sub-                                   N5 million    N50 million

       -     One major development is the introduction of Market Makers, whose
             minimum capital base is fixed at N2 billion.

       The new minimum paid-up capital requirements for other operators include:

       -     Trustees- N40 million
       -     Corporate Investment Advisers- N5 million
       -     Individual Investment Advisers- N500,000
       -     Rating Agencies – N20 million
       -     Receiving Bankers - (as stipulated by CBN5)
       -     Consultants (individual) – N500,000
       -     Consultants (Partnership)- N2million
       -     Consultants (Corporate) - N5 million
       -     Venture Capital Managers – N20 million

    Schedule 1 Part B Rules and Regulations of the SEC (as amended)
    This is currently N25 billion

   -   Commodities Brokers – N40 million
   -   Capital Trade Points – N20 million
   -   Stock/Commodity Exchanges – N500 million

“Minimum paid up capital” or “Shareholders Funds”? - The Guidelines on
Minimum Capital Base for Capital Market Operators issued by the SEC (―the
Guidelines‖) deals with ―minimum capital base‖. Capital base was further defined
in the Guidelines to mean Shareholders‘ fund comprising ―paid up capital, plus
capital reserves, plus general reserves, minus revaluation reserves (in respect of
fixed assets, marketable securities and other assets), minus intangible assets (such
as goodwill and patents), minus fictitious assets (such as capitalized expenses, pre-
operational expenses and deferred cost). Thus, it appears that while existing
operators are required to increase their Shareholders’ Funds by December
2008, new entrants into the industry must have the new minimum paid up
capital at incorporation.

(3) How can the recapitalization be achieved?

   The Guidelines provides for methods for capital injection into the industry to
   wit: Cash and Treasury Bills, Transfer of quoted securities at market value,
   FGN Bonds, transfer of landed property at net book value and transfer of
   other fixed assets at net book value. Curiously enough, the Guidelines does
   not include ―Mergers and Acquisition‖ as one of methods of injecting capital
   into the Industry.

   In addition to the methods stated in the Guidelines, a company can adopt
   either one or a combination of other options. Some of these options are
   highlighted as follows:

   A. Rights Issue: the offer of unissued shares in the authorized share capital of
      a company to its existing shareholders (to the exclusion of new investors),
      pro rata to their shareholding in the company. A major advantage of this
      method of raising capital is that, where all the existing shareholders
      exercise their ‗rights‘ there would not be dilution of their shareholding.
      However, existing shareholders are not compelled to take up their rights
      and where there is shareholder apathy, this method of raising capital may
      not be reliable.

   B. Public Offers: Generally entails the invitation of the general public to
      invest in a company. It can be undertaken in several ways. One of such
      ways is an offer for subscription, whereby the company invites the
      general public to subscribe for unissued shares in its authorized share
      capital. Where the company is embarking on a public offer for the first
      time, it is usually termed an Initial Public Offer. A Public Offer is a fairly
      reliable option for raising capital, particularly where the company posts
      financial results that are commendable and enticing.

       However, a major snag is that Private Companies are precluded, by Section
       22 of the Companies and Allied Matters Act (―CAMA‖), Cap C20 LFN
       2004, from inviting the general public to subscribe for their shares. Also, a
       Private Company cannot have more than fifty members (excluding its
       employees). Therefore, a public offer is not an option for a private
       company seeking to raise capital.

   C. Private Placements: This is an arrangement where a company offers its
      shares to identified and pre-qualified investors. This is often used to raise
      capital from institutional investors without the need to offer shares to the
      general public. A major advantage is that disclosure requirements are
      limited to investors and not to the general public. It is also very useful to
      private companies, as they will not be in breach of Section 22 of CAMA
      and would often still be able to maintain a shareholder base of less than
      fifty members.

       It should however be noted that where a public company seeks to raise
       capital by way of a private placement, it must comply with the Rules and
       Regulations of the SEC.

   D. Mergers and Acquisitions: Mergers and Acquisitions are also methods of
      achieving minimum capital requirements. They basically entail a
      combination of two or more businesses into one entity. This option was
      adopted by a number of banks in the recent banking consolidation exercise
      (which resulted in the reduction of the number of banks, licensed to
      operate in Nigeria, from eighty-nine (89) to twenty-five (25), in December
      2005). It is also important to mention that the number of banks operating
      in Nigeria has been further reduced to twenty- four (24), following the
      merger of IBTC Chartered Bank Plc with Stanbic Nigeria Limited; and a
      number of banks and Insurance Companies are discussing with one
      another with a view to consummating further mergers and acquisitions.

   It is possible to achieve some of the modes of capital injection
   stipulated in the Guidelines through the above options. Options A,B&C
   will result in cash injection as required under the Guidelines, whilst
   Option D may result in transfer of landed property and other fixed
   assets as prescribed under the Guidelines.

We will now examine mergers and acquisitions in some more details.


Mergers and Acquisitions have grown in popularity as a means of corporate
restructuring. But what are mergers and acquisitions and how do they play a vital
role in achieving the new mandatory minimum capitalization requirements? To the
layman, mergers and acquisitions are often uttered in the same breath and used as
though they were synonymous; they, however, mean slightly different things.

An acquisition involves the take over, by one company, of another company.
The target company often6 ceases to exist, as the buyer "swallows" the business of
the acquired company and the buyer continues in business. On the other hand, a
merger happens when two or more firms (often of about comparable size and
posture), agree to go forward as a single (sometimes new) company rather than
remain separately owned and operated.

   Both are very similar corporate actions- both combine 2 previously
    separate entities into one;
   Unlike in a merger, in an acquisition, the acquiring firm offers cash to the
    target‘s shareholders or the acquiring firm‘s shares to the shareholders of
    the target in a specified ratio;
   A merger is often a ―mutual‖ decision made by ―equals‖;
   An acquisition on the other hand is characterized by the purchase of a
    smaller entity by a larger one – a combination of ―unequals‖.
   In practice however actual ―mergers of equals‖ do not often happen.

Whether a transaction is a merger or an acquisition depends on how it is
communicated to and received by the Board, the employees, shareholders
and the relevant regulators!



*    Form of business combination whereby 2 or more companies fuse and
become one

*          Usually effected by ―Share Exchange‖ (dissentients take cash)

                                                                                        New Entity

  Sometimes an acquisition may be by way of the acquisition by an acquirer of sufficient shares in the target company as to give the
acquirer control in the target company but the target company continues to exist as a subsidiary/ affiliate of the Acquirer.

            2 or more form a new entity


Surviving             C                                2 or more dissolve into one of
entity                                                 merging partners

                               B              Surviving entity
                                              One merging partner
                                              dissolves into the

S100 (1) Investment and Securities Act Cap I24 LFN 2004 (‗‘ISA‘‘) provides as

       ―Where under a scheme proposed for …the merger of any two or more companies, the
       whole or any part of the undertaking or the property of any company concerned in the
       scheme is to be transferred to another, the court may on the application in summary of
       any of the companies to be affected, order separate meetings of the Companies to be
       summoned in such manner as the court may direct.‖


The SEC Rules prescribe a three (3) step approval process for mergers, to wit:


             (I)     Merger proposal prepared, considered and approval in
                     principle by merging companies
             (II)    Pre-merger notice given to members of the company and SEC
                     approval in principle
             (III)   Obtain order of FHC to convene shareholders‘ court-ordered


             (IV)    Scheme of Merger approved by three-fourths majority in value
                     of members present and in voting either in person or by proxy
             (V)     Scheme sent to SEC for final approval
             (VI)    Must be sanctioned by FHC


        (VII)              Compliance with all orders and directions to the


For the purposes of determining categories of mergers, SEC prescribes thresholds
based on a combination of turnover and or assets. Until SEC, by its regulations,
prescribes other thresholds, Section 120 (4) stipulates the sum of N 500,000,000
(circa U.S $ 4,237,288 at $1 to N118) as the lower threshold and N 5,000,000,000
(circa U.S $ 42, 372, 881 at $1 to N 118) as the upper threshold.

A.     A small merger is one with a value at or below the lower threshold: the
       effect of this according to Section 122 is that where the merger in question
       is a small one, then the parties are not required to notify SEC unless SEC
       expressly requires such notification, and they may implement the merger
       without approval. Sub section (3) specifically provides that within six (6)

        months of the merger, SEC may require the parties to notify it in a
        prescribed form if, in SEC‘s opinion, the merger contravenes the
        provisions of Section 121 and substantially prevents or lessens


   1.      Parties notify SEC (if required by SEC)
   2.      Within 20 working days of such notification SEC
           a. may extend the period in which to consider the merger by a single
           period not exceeding 40 working days, in which case, it must issue an
           extension certificate to that effect;
           b. after considering the merger in terms of Section 121, shall notify the
           parties in a prescribed form of;
           i. its approval of the merger
           ii. approval of the merger subject to any conditions
          iii. the prohibition of the implementation of the merger, if it has not
             been implemented
          iv. if, already implemented, a declaration that that merger is prohibited
   3.      if the merger is approved the parties shall apply to court to sanction the
           merger, once this is done it becomes binding and effective.
   4.      upon the expiration of the 20 working days or the expiration of the
           extension, if SEC has not notified the parties of its decision, the merger
           shall be deemed to have been approved.
   5.      SEC shall :

              a.          publish a notice of its decision in the Gazette; and
              b.          issue written reasons for the decision if-
                     i.          it prohibits or conditionally approves the merger; or
                    ii.          requested to do so by a party to the merger.


B.         An intermediate merger is one with a value between the lower and the
           upper threshold:

C.         A large merger is one with a value at or above the upper threshold.

Section 123 of the ISA 2007 provides that for an intermediate or large merger, the
parties shall give notice of the merger to SEC in a prescribed form. Thus, the
parties to an intermediate or large merger shall not implement the merger until
SEC‘s approval has been obtained.

Sections 123-126

     1.       The parties shall provide copy of notice of merger to –
              (i)   any registered trade union that represents a substantial number
                     of its employees; or
              (ii)   concerned employees or their representatives

     2.       SEC may –
              (i)  investigate or appoint an inspector to investigate the merger
              (ii)   require additional information from any of the merging parties
                     in respect of the merger
     3.       In the case of an intermediate merger, the SEC may, within 20
              working days after all notification requirements have been fulfilled,
              issue a certificate either approving the merger or approving it subject to
              some conditions or prohibiting the implementation of the merger.

     (a)      The SEC may also extend, by a period not exceeding 40days, the period
              in which it has to consider the merger and shall issue an extension
              certificate to the merger parties.

     (b)      Upon the expiration of 20 working days, if the SEC has not issued a
              certificate, the merger shall be deemed to have been approved.

     (c)      SEC shall –
              (i)    publish a notice of its decision in the gazette
              (ii)    issue written reasons for the decision if it-
                      (a)   prohibits or conditionally approves the merger; or
                      (b)   is requested to do so by a party
     4.       After receiving notice of a large merger, the SEC shall refer the notice
              to court and within 40 working days after parties have fulfilled the
              prescribed notification requirements, forward to the court a statement

            stating whether the merger was approved, approved subject to
            conditions or prohibited.


Section 127 provides that SEC may revoke its decision to approve or conditionally
approve a small, intermediate or large merger based on -

   (a)      incorrect information for which a party to the merger is responsible; or
   (b)      an approval obtained by deceit; or
   (c)      breach of an obligation attached to the merger by any of the merging
* The Right of the SEC to revoke any merger is unreserved and is not barred by
any time limit stipulated under the Act.



    Acquisition by company of sufficient shares in another to gain control –
         (S. 99 ISA)
    Take over under SS103 to 122 of ISA admits of ―hostile‖ transactions
    Take over bid cannot be launched against private company (S104(4))
    Appendix 1 contains Procedural Checklist


         SEC

        •   Apex regulator of Capital Market operators
        •   Grants pre-merger consent, clears Scheme Document and approves
        •   Grants authority to proceed in a take-over bid

         NSE7

        •   It is a Self Regulatory Organisation
        •   It regulates listed public companies
        •   It regulates secondary market transactions
        •   Must be notified by listed companies of intention to merge
        •   Admits ―new shares‖ to Daily Official List; de-lists ―Scheme Shares‖ of
            dissolved companies

     FHC

        * Orders separate shareholders‘ meetings of merging parties

        * Deals with objections to shareholders‘ meetings or to merger

    * Sanctions merger- the merger becomes effective from the date the order is

           CAC

   * Filing and certification of corporate resolutions and documents to be filed
with SEC

        * Filing of sanction

        * De-registration of dissolved companies

   Where the company in question is not a quoted one, that is, the shares have not been admitted to the daily list of companies trading
on the floor of the Nigerian Stock Exchange, and then the NSE would not be one of the Regulators involved in the transaction.


          INFORMATION TECHNOLOGY                                                                        HUMAN RESOURCE
          CONSULTANTS                                                                                   CONSULTANTS

                                                   CORE ADVISERS

                                                       MERGING COMPANIES
                                                       Company   Company
                          SOLICITORS                      A         B                         ACCOUNTANTS

                                           AUDITORS                       STOCKBROKERS

                   PUBLIC RELATIONS                                                                    AGENCIES /
                   / BRANDING                                                                          CONSULTANTS


The companies discussing a merger or acquisition transaction may need to enter
into a number of agreements and take some precautionary measures. These
include the following:

(a)           Exclusivity Agreements

Where Exclusivity agreements are executed, the target company agrees not to sell
its assets or shares to anyone else during a period of time set by the parties.
Exclusivity agreements are particularly relevant in purchase of public companies
because there is a tendency for most material aspects of the transaction to quickly
become public knowledge.8

    Rule 235 (4) of the SEC Rules requires the publication of a bid in at least 2 national daily newspapers

(b)    Memorandum of Understanding

Parties can enter into a Memorandum of Understanding. Such agreements are
necessary when parties reach agreement in principle, about the terms of the
transaction, but before drafting binding definitive agreements.

They are usually marked ―subject to contract‘‖ and, in the proper context, expressly
state that the parties do not intend the contents of such agreements to be legally
binding. However, it is not enough to simply declare that the Memorandum of
Understanding is not legally binding because the legal test for the binding
character of an agreement is the intention of the parties, as can be determined
from all surrounding circumstances.

The Memorandum of Understanding often sets forth the proposed structure of
the transaction, the price and how it will be paid, whether through a conversion of
notes or stock as part of the price, and other general, features of the transaction
such as special accounting or tax considerations. It may also contain preconditions
to consummation of the transaction—need for regulatory approvals, completion
of due diligence and execution of a mutually satisfactory merger agreement.

(c)    Confidentiality Agreements:

Confidentiality Agreements are always binding. They contain parties‘ agreement in
respect of the way in which information and documents will be handled, as well as
issues about disclosure and disposition of documents after the deal proceeds.

Confidentiality agreements generally bar parties from disclosing one another‘s
confidential information except in cases required by law or statutory agencies; or
as part of evidence to be given in court; or information is deemed to be within
public domain. A party may also consent to the disclosure of otherwise
confidential information.

(d) Representations and Warranties:

These are obtained in order to indemnify the other party against untrue or false
statements upon which that other party has acted, and as a result of which action
he has suffered some loss or damages. Parties can seek further assurances by way
of contracts of indemnity, guarantees or performance bonds.

(e)    Due Diligence:

Due diligence essentially involves investigation of the target and its business, by
the bidder and its professional advisers, before consummation of the merger.
WHY IS IT ESSENTIAL?? It is essential because it reveals the actual status of the
target company (legal, financial, tax liability and other regulatory compliance) and
in the long run it aids valuation. Business prudence dictates that the target also

conducts due diligence on the bidder, the target may also conduct an internal due
diligence on itself before making representations and warranties to the bidder, in
order to mitigate future liability which may result from inaccuracies in such
representations and warranties.

              Types of Due Diligence Exercises

Several professional advisers such as lawyers, accountants, tax consultants,
environmental consultants, insurance brokers, pension advisers e.t.c. may be
commissioned to undertake due diligence exercises, each from its own
perspective. However, two common exercises are the legal and financial due
diligence exercises.

         (A) Legal Due Diligence

         This covers analyses of several issues, such as:

         (1) Ownership of the business. Lawyers will need to confirm that the target
             was legally incorporated9 and that it continues to exist. This will involve
             verification of the authenticity of the certificate of incorporation and any
             other applicable business permits;10 as well as any changes to these. There
             is also need to scrutinise the Memorandum and Articles of Association,
             resolutions of board of directors and resolutions of members in general
             meeting. The scrutiny may extend to other agreements of the company.

              While perusing these documents, the lawyers should aim at confirming:
                (a) the authorised share capital of the company, including the classes of
                (b) issued and paid-up share capital, including their classes;
                (c) shareholders of the company and classes of shares they hold;
                (d) directors and the secretary of the company;
                (e) where and when the statutory books and minutes of meetings may
                    be inspected;
                (f) shareholder agreements or other similar agreements which would
                    require consent before merger or acquisition can be undertaken;
                (g) agreements granting options over, or the right to call for, the issue
                    of any share or loan capital of the company;
                (h) details of other corporate bodies in which the company owns shares
                    or other securities;
                (i) validation of title to property and perfection of same, and whether
                    or not they are free from encumbrances such as charges; and
                (j) capacity to sell cum solvency of the company

         (2) State of the business: the legal due diligence should reveal the following:
     Under CAMA
      Such as those issued by the Nigerian Investment Promotion Commission

        (a) Key customers and contractual terms entered into by the company;
        (b) Any disputes arising from contracts11
        (c) Description of the nature of operations carried on by the company; and
        (d) Where the company is affiliated to other companies, a legal structure chart
        of the companies in the group which carry on the business or own assets
        employed in the business;
        an organisational chart; and details of contracts or arrangements relating to the
        affiliated companies.

        (3) Employees: it will be necessary to examine the updated list of the
            employees, any significant agreements, such as collective bargaining
            agreements and employee share option schemes, which may affect the
            finances of the companies. It will also be necessary to look into pension
            and retirement schemes of employees.

        (4) Intellectual Property and Technology issues: the due diligence exercise
            should reveal the existence and nature of intellectual property assets and
            trade secrets, of the company. There should also be confirmation of
            compliance with regulatory regimes, such as those on technology transfer. 12

        (5) Litigation analysis: there is need to determine the validity of and estimated
        liability arising from existing lawsuits and claims. There is also a need to review
        insurance policies of the company for the purpose of ascertaining cases to be
        covered by liability insurance indemnities; as well as evaluation of applicable
        company law and tort rules concerning successor liability for contractual and
        tortious liability of the target.

        (6) Searches of public records: it may be necessary to conduct searches at
        public offices such as the Lands Registry, Corporate Affairs Commission,
        Securities and Exchange Commission, Standards Organisation of Nigeria,
        FBIR and the Nigerian Stock Exchange. Other public registers may be
        consulted, such as environmental registers, intellectual property registers and
        other health and safety registers. This is to confirm the company‘s compliance
        with relevant laws and regulations.

        (B) Financial Due Diligence

        This will typically cover the following:

 (a) Accounting and financial control systems of the company;
 (b) Comparison of the company‘s historic trading results and current trading
     position, contrasted with its budgets;
 (c) Ability to raise short-term and long-term capital, as well as the cost of such
     capital relative to general industrial indicators;
     In order to determine possible contingent liabilities
     For instance, compliance with the provisions of the National Office for Technology Acquisition and Promotion Act, Cap N62 LFN 2004

 (d) Tax liabilities of the company and tax implications of the proposed deal;
 (e) Value of assets and liabilities to be acquired;
 (f) Product development and competitors;
 (g) Capital investments, profitability, margin/price earning ratio, review of
     forecast of trading results; and
 (h) Analyses of synergies.

 A modern approach to financial due diligence is the commissioning of a detailed
 credit rating check on a company in order to reveal information relating to the
 affairs of the company, particularly its creditworthiness.


 The Merger Agreement provides a mechanism for adjusting the Exchange Ratio
 in the event that post merger any of the representations made by a party is untrue
 and materially affects the agreed valuation and exchange ratio.
 The Merger Agreement also provides for appointment of the representatives of
 the pre-merger shareholders of the parties to agree a new exchange ratio.


SEC seeks to ensure that business combinations do not violate competition
regulations. It will only grant approval where it finds that transactions are not
likely to substantially prevent or lessen competition or create monopolies in the
line of business enterprise.13 This provision is slightly different from the ISA
1999, it provides that;

If it appears that the merger is likely to substantially prevent or lessen competition,
then the SEC must determine;

                    I. 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 effect of any prevention or lessening of
                       competition, that may result or is likely to result from the merger,
                       and would not likely be obtained if the merger is prevented;

                   II. whether or not the merger can or cannot be justified on substantial
                       public interest grounds by assessing the factors set out in subsection

     S .121 of ISA 2007,

Regrettably, in Nigeria, there is currently no statutory yardstick for determining
whether or not a transaction would substantially restrain competition or create a
monopoly. Also, SEC has not yet issued detailed regulations on this.14

Nevertheless, the SEC Rules require parties to a merger negotiation to submit a
detailed write-up on the proposed transaction including, among other things, a list
of the major competitors in that product market and the market position or
market share of each company.15 It also requires the parties to submit an analysis
of the effect of the transaction on the relevant market including the post
transaction market position of the surviving company.16

An anti-competition bill known as the Competition (Antitrust) Bill 2007 which is
yet to be passed into law also seeks to maintain, encourage and stimulate
competition amongst enterprises in Nigeria. The bill seeks to eliminate anti-
competitive practices, mergers, acquisitions and abuse of dominant position of
market power among enterprises that limit access to markets or otherwise tend to
impede or distort normal competition and adversely affect commercial activity
and economic development within Nigeria.


In Nigeria, disclosure requirements affect public companies and not private
companies. The SEC Rules stipulate that a take over bid must be publicised in at
least 2 national daily newspapers.17

However, the ISA does not specifically require disclosure in business combination
transactions, akin to requirements for the issuance of prospectuses where there is
a public offer of shares for sale.


-Synergy results in economies of scale and possible reduction in overhead costs

- In theory, larger shareholder returns, all other things being equal

- Profile of big entities and marketability (particularly for foreign investors)

- Larger entities can compete better

- More liquidity from more shares in play

- Ability to take up larger commitments e.g. underwriters
    Indeed, the bill for a legislation to enact a competition law regime was not passed into law by the National Assembly. However, this
bill was re-presented before the National Assembly in 2007 and is presently being deliberated upon.
   New Rules have not been issued for the new ISA, so we rely on the old Rules in this regard. Rule 232 (ii) (b) of SEC Rules
   Rule 232 (ii) (e), ibid
   Rule 235 (4) of SEC Rules


The under-listed are some of the challenges that Capital Markets Operators may
encounter if they adopt mergers and acquisitions as options for recapitalization
and suggestions for the mitigation of such challenges:


Egos of merging companies can frustrate negotiations and be carried into new
entity. Other possible outcomes of these cultural differences include:

    Challenges with HR integration— Incompatibility of parties may lead to
     tension, conflict and polarity of employees along the lines of the pre-
     merger entities.
    Variations in operating systems (and the need for IT Integration)
    Challenges with Board composition (particularly where it is to be drawn
     from the pre-merger entities)
    Where will our Corporate HQ be?

Mitigant –
      - Parties must act in good faith and put the interests of their institution
      above those of themselves
      - They should consider shareholder value, larger goal
      - Regulators must be firm.

(b) DUE DILIGENCE – a frequent bottleneck encountered in mergers and
acquisitions is lack of access to all information /documents during due diligence
exercises, which is necessary to assure informed and accurate evaluation of parties.

      - Data Room insufficiency
      - Unseen ―hole‖/contingent liability
      - Improper governance
Mitigant –
      - Thorough and alert Due Diligence advisers
      - Detailed information & documentation requisition
      - Persistence on the part of Due Diligence Advisers
      - Post merger safeguards
                        • representations, warranties, indemnities
                        • Provisions for post merger adjustments;- escrow
                           funds or shares


   (i) SEC, NSE, CAC

    SEC‘s view of meaning of guidelines
    Inadequate provision of documentation and information
    Unseen objections occasioning delays

Mitigant –

        - Urgent clarification from SEC
        - Detailed and timeous provision of all necessary documents and
        - Good relationship with regulatory authorities (mutual respect)- B&I has
this with SEC.

(ii) Application for Court Order to hold company meetings

          Tardy application
          Dissentients‘ objections to holding of Court Ordered Meetings
          3rd Party objections (such as from employees)
Mitigant –

   -    Efficient filing of processes;
   -    Meticulous arguments (leave nothing to chance)
   -    Court ―watch‖ - monitor FHC court registries nationwide
   -    Nip mischief in the bud (firm position by Court)

(iii) Post Meeting compliances

        Delays at SEC and CBN – Unseen hand petitions

Mitigant -

   -    Careful compliance; provide all required documents and information
   -    Full disclosure
   -    SEC requirements must be clear and precise
   -    Maintenance of transparent and good relationship with regulators

(iv) Application to FHC for Sanction of Scheme

        Objection by dissentients – (last stand of unseen hand)

        Incomplete and or inadequate processes and info to court

Mitigant –

   -    Efficient filing of all processes;

   -    Careful detailing of conduct of meeting;
   -    Clear confirmation of attainment of statutory majority;
   -    Restate provision for treatment of staff;
   -    Clear confirmation of all statutory and regulatory compliance requirements

(v) Post Merger Compliance

        Trade Mark Registry delays
        Perfection costs – stamping, registration of title at land registry,
       Governors‘ consent (this may need to be done in various states)
        Publication of sanction in official gazette

Mitigant -

   -    Persistence, patience;
   -    Careful explanation;
   -    Reliance on Court

(d) JOB LOSSES (with attendant social impact such as crime)

Other ways to Manage/Mitigate Risks

Regulators can provide incentives such as:

        - Debt forbearances
        - Reduction or waiver of SEC filing and registration fees
        - Reduction or waiver of NSE Listing fees
        - Reduction or waiver of CAC filing fees
        - Help Desk and access to ―free‖ advice
        - Establishment of Consultative Committees to render advice
        - Tax incentives

Parties can also help by doing the following:

           Strict compliance with all statutory and regulatory provisions
            Efficient and transparent relations with one another
           Full disclosure by all parties
           Utmost good faith by all parties
           Thorough and competent advisers
           Flexible, creative and dynamic advisers

Given, the fact that most of the existing capital market operators are small
private companies with minimal Shareholders’ funds, the new capital base

requirement is unlikely to be achievable through mergers or acquisition
unless the transaction involves a large number of operators. Furthermore,
the cash/asset ratio mix stipulated in the Guidelines will be difficult to
achieve through a merger alone, as a merger basically involves an exchange
of shares.

Capital market operators may have to adopt Mergers in combination with
other modes of capital injection stated in the Guidelines.



              Identify target company
               Appoint professional advisers
              Conduct due diligence audit/detailed evaluation of target company
              Determine bid price and arrange finance for successfully effecting
              Hold informal discussions with shareholders holding large share
             Hold Board meeting whereat formal resolution to make takeover
              bid is passed
             Apply to SEC for ‗authority to proceed‘
             Finalize bid and confirm bid period/termination date
             File registration of bid with SEC
             Dispatch bid to every holder of shares, subject of the
                      acquisition, directors of the Target Company and SEC.

-     Directors obliged, at least 7 days before bid termination date or 60 days
from date of bid,   to forward circular to shareholders specifying position on

-     Shareholders may individually accept or reject offer.

-     Where bid is accepted, Offeror may, within one month after date of
      acceptance of           shares by majority representing not less than 90% in
      number of shares subject to acquisition give notice by Section 117 to
      dissentients; that take-over bid has been accepted; Offeror is bound to take
      up and pay for shares of offerees who accept bid

A dissentient may within 20 days of receiving notice respond electing, to either
transfer shares to Oferror at bid price or demand payment of fair value.

-If dissentient does not make any election, he is   deemed to have elected to
transfer shares at bid price

if dissentient elects payment of fair value Offeror may, within 20 days apply to
Court to fix fair value of shares of dissentient.

       -      If Offeror fails to do so, dissentient may apply to Court within
              further 20 day period.

       -   Court will fix fair value for shares of all dissentients, and Offeror
           obliged to pay such fair value.

            Issue formal announcement of bid and       commence      aggressive
           enlightenment, and marketing campaign
            Based on Target and market reaction, there may be need to readjust
       or restructure bid
            Receive acceptance within prescribed period and commence
       payment of consideration in accordance with bid terms
            Where applicable, Offeree effects payments of CGT
            If bid is successful, complete all post-bid requirements, including
       issues relating to dissentients.



         Joint Originating Summons (ex-parte) seeking leave of Court that

      -      separate shareholders‘ meetings be convened on specific days at
             specific times  and venues

      -       meetings to be convened in usual way       General   Meetings   are
conducted, in accordance with Articles

      -      designating persons to act as Chairmen

if 3/4 majority approve merger, Reports of meeting be presented to Court with
Petition for sanction (orally seek return date)

       Affidavit in support of Originating Summons, deposed        by Chairman
of each Company

      -      verifying Company‘s incorporation details

      -      registered office address

      -      objects, share capital history

      -      intention to merge

      -      Board resolution recommending merger

confirming filing of pre-merger notice with SEC

-     confirming that notices will be sent to all shareholders and   advertised
in    newspapers

      Exhibits to Affidavit

      -      Draft Scheme Document

      -      Certificate of Incorporation

      -      Memorandum and Articles of Association

      -      Certificates of Increase in Share capital

      -      Extract of Board resolution recommending merger

       Affidavit of Urgency in support of Originating Summons deposed by
Solicitor Company Secretary to each Company

      -      reiterates averments in Chairman‘s Affidavit

      -      avers that it is imperative (due to financial and administrative
      reasons) that merger       processes be timeously concluded

       -      craves Court‘s indulgence for Summons to be heard at earliest
possible date



        Joint Petition seeking sanction of proposed     merger,        signed    by
parties‘        Solicitors

       -      gives background, history & particulars of each Company

       -      states object of proposed Scheme

       -      gives details of proceedings at court- ordered meetings

       -      confirms obtaining of SEC approval

       -      prays the Court to sanction the Scheme     and make specific orders

    Affidavit in support of Joint Petition, deposed by Chairman          of     each

       -      aver the convening of court-ordered meetings as directed

       -      report on voting at meetings

       -      confirm receipt of SEC approval

       -      state that the Scheme is fair and reasonable

      Affidavits proving convening of Court-ordered Meeting deposed by
       Company Secretary

       -      aver that Notices of meeting and Scheme Document were duly

       -      confirm publication of Notice in Newspapers

      -      confirm that in capacity as Secretary, ensured that meeting was
convened in usual               manner

      Exhibits to Affidavit

       -      Scheme Document

       -      Newspaper publication

       -     Chairman‘s Report of Court-ordered meeting confirming due
     convening of the court-ordered meeting

           -      that firm of accountants acted as Scrutineers

           -      proper conduct of meeting; Q&A session, resolution put to
                  vote, voting by poll, results of voting

   Affidavit verifying Chairman‘s Report of Court- Ordered Meeting;
   Affidavit confirming SEC‘s approval of the merger, deposed by Financial
    Advisers averring that SEC approval has been obtained
   Exhibit to Affidavit

    -      SEC letter conveying approval of merger


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