MERGERS AND ACQUISITIONS – LEGAL FRAMEWORK AND THE ROLE OF SOLICITORS By Elizabeth Ifeoma Uba-Onubogu

HIGHLIGHTS Overview Types and Forms of Mergers and Acquisitions Motivations for Mergers and Acquisitions Legal Framework for M & A in Nigeria Regulatory Bodies and Agencies The M & A Process Specific role of Solicitors in M & A transactions

OVERVIEW Mergers and Acquisitions (M&A) is a general term that refers to the consolidation of companies or assets through various types of financial transactions. A merger is “any amalgamation of the undertakings or any part of the undertakings or interest of two or more companies and one or more corporate bodies.” Section 421 of the rules and regulations of the Securities and Exchange Commission (SECRR) An acquisition is “the take-over by one company of sufficient shares in another company to give the acquiring company control over that other company.” Section 421, SECRR. M&A can include a number of different transactions, such as (i) purchase or lease of the shares, interest or assets of the other company in question or (ii) amalgamation or other combination with the other company in question. Sec. 119(2) of the Investment and Securities Act.

A. Types of M & A Horizontal Merger: “mergers involving direct competitors.” (421, SECRR) The merging companies are usually in the same business, e.g. Standard Trust Bank and United Bank of Africa to become United Bank of Africa. Vertical Merger: “means mergers involving firms in non-competitive relationships.” (421, SECRR). The merging companies operate along the same value chain resulting in backward or forward integration. Think of a cone supplier merging with an ice cream maker. Cadbury Nig. Plc’s acquisition of Stanmark Cocoa Processing Co Ltd in 2013. Conglomerate merger: “means other types of mergers.” (421, SECRR) The merging companies do not operate in the same market or business. E.g. the acquisition of Osogbo Steel by Dangote Industries. Concentric diversification: Merger between companies that provide different products to the same customers or the development of products that offer synergies with current products. E.g. the merger of a catering company with a rental business.

B. M & A Thresholds in Nigeria Lower threshold shall be below N1,000,000,000 (one billion Naira) Intermediate threshold is between N1,000,000,000 (one billion Naira) and N5,000,000,000 (five billion Naira) Upper threshold is above N5,000,000,000 (five billion Naira)   Note: These thresholds are of either combined assets or turnover or a combination of both assets and turnover of the merging companies. (Sec. 427 SECRR).

C. Forms of Merger and Acquisitions Two or more entities form a new entity Two or more entities dissolve into one of the merging partners One merging partner dissolves into another

MOTIVATION FOR MERGERS AND ACQUISITIONS Market Technology Market Share 3. Financial Diversification Financial Stability Market Size and Market Access Lower costs of Financing  Synergy Reduction of Business Risk Economies of Scale and Scope 4. Shareholder value and Returns Operating Efficiencies Revenue Enhancement Specialized Skills

LEGAL FRAMEWORK FOR MERGERS AND ACQUISITION IN NIGERIA Laws and Regulations  Investment and Securities’ Act Key legislation regulating the Nigerian capital market including mergers and acquisition transactions is the Investment and Securities Act CAP I24, LFN, 2004(“ISA”) and the rules made pursuant to it; the “SEC Rules and Regulations 2013 (as amended by SEC Rules and Regulation 2015)”. Section 13(p) ISA and Section 118(1) - SEC primarily responsible for reviewing, approving and regulating M&A and all forms of business combinations. Section 425 to 426 SECRR and 122 to 127 of the ISA - lays down the statutory requirements for effecting mergers; specifies procedures and requirements for obtaining SEC approval to mergers; applies to transactions by public and private companies and to every M&A or combination involving acquisition of shares or assets of another company. Sections 131 to 145 of ISA - prescribes mechanism for takeovers.

LEGAL FRAMEWORK FOR MERGERS AND ACQUISITION IN NIGERIA (2) B. Sectoral Regulations Although the ISA is the major legislation on M & A transactions in Nigeria, such transactions involving organisations in regulated industries are also subject to the provisions of the various sector legislations. These include: 1. Banking Industry The Central Bank of Nigeria (“CBN”) regulates bank mergers pursuant to its powers under: the Banks and Other Financial Institutions Act 1991 (as amended); the Central Bank of Nigeria Act 1991 (as amended); and the CBN Procedures Manual for Applications for Bank Mergers/Take-overs, 2004 (as updated). This provides for stages of approval from the CBN as follows: Pre-merger – this represents the Central Bank of Nigeria’s preliminary consent to the banks wishing to merge, stating that it has no objection to the merger. The preliminary consent will form a basis for the merging banks to forward an application for merger to SEC. Approval-in-Principle – this represents the Central Bank of Nigeria’s conditional approval of the proposed merger or takeover.

LEGAL FRAMEWORK FOR MERGERS AND ACQUISITION IN NIGERIA (3) Final Approval – this is given after the merger or takeover has been approved by SEC. Upon obtaining final approval, the successor bank in the case of a merger will be issued a new banking license. 2. Electricity Sector – Electric Power Sector Reform Act 2005 In line with its regulatory function of promoting competition and preventing abuse of market power in the electricity sector, the Nigerian Electricity Regulatory Commission (“NERC”), pursuant to section 82(5) of the Act, has the power to make a decision on whether or not to approve a merger or acquisition in the Nigerian power sector. 3. Insurance Industry - The National Insurance Commission Act, CAP N53 LFN 2004 The Nigerian Insurance Commission has regulatory oversight of insurance business in Nigeria and, as such, its consent or non-objection is also required in the case of any proposed merger involving an insurance company. The National Insurance Commission (“NAICOM”) requires a public advert directed at policyholders before its approval of any merger or business combination. Section 30 to 31 of the NAICOM Act contain provisions for any amalgamation or transfer between insurance companies.

LEGAL FRAMEWORK FOR MERGERS AND ACQUISITION IN NIGERIA (4) Telecommunications– The Nigerian Communications Act, 2003 The Nigerian Communications Commission (“NCC”) has regulatory oversight over the Nigerian telecommunications industry and has made a regulation in this regard: “The Competition Practices Regulations 2007”. These regulations provide a framework for the promotion of fair competition in the communications sector, and creates standards and procedures which will assist the NCC in determining anti-competitive conduct by licensed entities. The regulation gives the NCC the right to review procedures for the acquisition of more than 10% of the shares of a licensed company, and transactions that may result in a change of control or direct/indirect transfer of acquisitions in a licensed company in the communications industry

Regulators Securities and Exchange Commission Corporate Affairs Commission Filing and certification of corporate resolutions and documents to be filed with SEC Apex regulator of CM and CM operators Grants pre-merger consent, clears Scheme Filing of sanction order Document and approves merger De-registration of dissolved companies Nigerian Stock Exchange 5. Other sectoral regulators, example NAICOM A self regulatory organisation, regulates secondary market transactions Must be notified by quoted companies of intention to merge Grants pre-merger consent (notice of intention to merge) Admits “new shares” to Daily Official List; de-lists “Scheme Shares” of dissolved companies Approval in principle  Federal High Court Final approval. Orders separate shareholders’ meetings of merging parties Deals with objections to shareholders’ meetings or to merger Sanctions merger

The M & A PROCESS – TRANSACTION STEPS Phases Major Activities Pre-Transaction Target Identification Preliminary Transaction Terms: term sheet, letter of intent or MOU, confidentiality and exclusivity terms Appoint advisers; financial, legal, reporting accountants, etc. Preparation of Transaction work plan Transaction Structuring Pre-Merger Regulatory Notifications and Board Approvals Due Diligence Prepare and send out a checklist of information required Prepare a data room; physical or virtual Perform Due diligence Send out Report Valuation Preparation of draft scheme documents and/or Information Memorandum Transaction Documentation Definitive Agreements; SSPA, SHA, Negotiations Board and Shareholder approvals Regulatory Considerations Apply for regulatory approval-in principle Advise NSE of proposed merger if quoted Preparation of draft processes for court ordered meeting Apply to court for court-ordered meeting, newspaper publications, etc. Informal notifications and discussions with holders of large bloc of shares to garner support Trade union issues, severance benefits, etc. Satisfaction of all condition precedents Completion Engrossment and Execution of Documents Transfer of Consideration Transfer of Completion documents Post – Transaction Formalities Post-Transaction registrations and regulatory filings Integration: culture, people, technology, etc.

Specific role of Solicitors in M & A transactions (1) Preparation of the Pre-Transaction Documentation MOU & Confidentiality Agreements, Term Sheet, Letter of Intent, etc. Assist in determination of transaction structure Conduct of Legal Due Diligence Send out a legal due diligence checklist Assist the client in setting up a data room Issue DD report and discuss details with client Assist Financial Advisers prepare draft Scheme of Merger Document Prepare court processes for application to court to order separate meetings of companies Work with client on staff audit issues Together with other advisers, approve, amend and finalise draft Scheme Documents and merger terms, preparatory to sending draft to SEC for clearance.

Specific role of Solicitors in M & A transactions (2) 8. Apply to Court for order directing the convening of separate meetings of shareholders of each Company to consider and if thought fit approve merger; obtain court order to convene each Company’s general meeting; 9. As Company Secretary, send out notices in prescribed format 10. Publish notices in at least 2 national newspapers – S 222 CAMA 11. Prepare Definitive Agreements Share Sale and Purchase Agreement Share Purchase Agreement Other ancillary documentation

Specific role of Solicitors in M & A transactions (3) 13. Work with Management to ensure satisfaction of all completion documents 14. Attend Completion Meeting and ensure that the meeting is conducted properly and all stakeholders present.  15. File merging company’s resolutions approving the transaction at CAC;   16. Facilitate all post-transaction regulatory filings with various regulators

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