Folake Elias Adebowale, Mary Ekemezie and Olamide Omolaja of Udo Udoma & Belo-Osagie assess the M&A regulatory framework in Nigeria
Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or developments in your jurisdiction?
In April 2015, the Securities and Exchange Commission (SEC) introduced new rules containing specific penalties for failing to comply with the notification requirements for mergers, acquisitions, external restructuring and other forms of business combination. See section 7.4 for more detail.
1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?
While there has been a slowdown in activity as a result of the current economic challenges arising from global fluctuations in oil prices, the size and continuing growth of Nigeria's consumer class and sectoral developments such as the evolution of the power sector present opportunities for increased M&A activity.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
The Investment and Securities Act (ISA) and the SEC rules govern M&A activity in Nigeria. The listing rules of the Nigerian Stock Exchange (NSE) may also be relevant.
2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The ISA and the SEC rules regulate public company takeovers. They are enforced by the SEC.
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile acquisitions?
Nigerian law does not provide a framework for hostile acquisitions. Acquisitions are typically achieved by means of a negotiated contractual sale or buy-out, a scheme of arrangement (SoA), a merger or a takeover bid (voluntary or mandatory).
3.2 What determines the choice of structure, including in the case of a cross-border deal?
In addition to the parties' commercial objectives, the structure of an equity acquisition is typically influenced by the nature of the target; the size of the equity stake and whether majority control is required; concerns about minority protection; regulatory approvals; concerns about ease of divestment; and, currency risk and timing concerns.
3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
Subject to the acquisition structure, whether due diligence is to be conducted and whether regulatory approvals are required, an acquisition could be completed within two to three months from the point at which a bidder is selected.
The length of time for which a deal will remain open to competing bids will depend on the structure of the acquisition. A takeover bid must remain open for at least 21 days and up to 35 days. An acquisition by way of a SoA or merger can be completed within three months.
3.4 Are there restrictions on the price offered or its form (cash or shares)?
With the exception of a takeover bid, there are generally no restrictions on the price, or the form, of consideration. Pricing is usually determined by the valuation of the target and negotiated by the sellers and the bidders.
3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
For an acquirer to be entitled to squeeze out minority shareholders under a takeover bid, 90% of the shares that were subject to the bid must have been tendered. For the purposes of this threshold, the shares already held by the acquirer are not counted if the entity is a limited liability company.
3.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
The takeover rules require that shareholders of the same class must be treated equally by an acquirer, given the same information and offered the same price for the shares. If the acquirer purchases shares of the target in the market at a price higher than the price offered under the takeover offer, the bid price will be deemed to have been amended accordingly. The takeover bid document must disclose the number of shares which the offeror and its affiliates already hold in the target. Any existing agreement or arrangement between the offeror and any of the directors of the target, which is connected to, or dependent on the takeover offer, must be disclosed.
3.7 To what extent can acquirers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
The ISA requires that offerors make adequate arrangements to ensure that the funds required to pay for any shares tendered under a takeover offer are available. The SEC would, therefore, expect to see clear evidence that the relevant funds are available in the form of bank statements or audited financials of the acquirer or a bank guarantee issued by a reputable bank. It is possible to make an offer subject to certain conditions; for instance, the offer can be made conditional on the acquirer receiving a specified minimum level of acceptances. Other than in relation to SEC-governed entities, acquirers are free to make conditional offers as described. Bank guarantees, or certain funding, are not otherwise generally required for acquisitions.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and trade-offs?
The direction and clearance of the board of the Federal Inland Revenue Service must be obtained for mergers and asset transfers involving related entities. This direction and clearance is in relation to the capital gains tax due on the gains that may be realised from the disposal of assets. This requirement is not applicable to unrelated entities.
There is no capital gains tax on the transfer of shares in Nigeria.
4.2 Are there special considerations in cross-border deals?
Section 5: ANTI-TAKEOVER DEFENCES
5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
There are no specific provisions in the ISA or the SEC rules on anti-takeover defences. A company may, however, seek to prevent a takeover by limiting access to non-public and price-sensitive information within legally permitted limits.
5.2 How do targets use anti-takeover defences?
5.3 Is a target required to provide due diligence information to a potential bidder?
5.4 How do bidders overcome anti-takeover defences?
5.5 Are there many examples of successful hostile acquisitions?
Section 6: DEAL PROTECTIONS
6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
6.2 To what extent are deal protections prevented, for example, by restrictions on impediments to competing bidders, break fees or lock-up agreements?
Lock-ups, exclusivity agreements, break fees and restrictions on impediments to competing bidders are common in Nigeria.
Notably, in relation to takeover bids of public companies, the NSE listing rules provide that no offer may be conditional upon the payment of compensation - which must be disclosed - for the loss of such offer.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your jurisdiction?
The provisions of the ISA and the SEC rules empower the SEC to determine whether any merger, acquisition or business combination is likely to substantially prevent or lessen competition.
Subject to this, an acquisition of a majority interest in a company is subject to the SEC's prior review and approval, except where the acquisition is in a private or unquoted public company with assets or turnover below N500,000,000 (approximately $2.5 million), or where a case may successfully be made to the SEC that the transaction qualifies under the holding company exemption.
Mergers are categorised as small, intermediate and large mergers. Intermediate and large mergers are subject to the prior review and approval of the SEC. A small merger is one in which the combined assets or turnover of the merging companies is less than N1,000,000,000. In relation to intermediate and large mergers, a pre-merger notification must be filed at the SEC.
7.2 When will transactions falling below those thresholds be investigated?
See 7.1. In addition, within six months of a small merger being completed, the SEC may require the parties to notify it of the merger if, in the SEC's opinion: (i) the merger may substantially prevent or lessen competition; or (ii) the merger cannot be justified on public interest grounds.
7.3 Is an antitrust notification filing mandatory or voluntary?
Pre-merger notification filing is mandatory for intermediate and large mergers. Parties to a small merger may voluntarily notify the SEC of the merger at any time.
Notification is mandatory for acquisitions involving companies with assets or turnover of N500,000,000 and above (which do not qualify for the exemptions referred to in 1.1 or 7.1), which are likely to substantially prevent or lessen competition.
7.4 What are the deadlines for filing, and what are the penalties for not filing?
The pre-merger notification must be filed before the merger is concluded. For acquisitions involving companies with assets or turnover of N500, 000,000 and above, the SEC must be notified before the acquisition is completed.
The new rules published by the SEC in April 2015 introduced new penalties for failure to comply with the pre-merger notification. For intermediate mergers a failure to comply could now attract a penalty of not less than N1,500,000, and N5,000 for every day of default.
For large mergers it could be a penalty of not less than N2,000,000 and N5,000 for every day of default. For an acquisition in a private or unlisted public company, failure to comply could attract a penalty of not less than N1,000,000 and N5,000 for every day of default. The new rules also empower the SEC to nullify any transaction for failure to comply with the pre-merger notification.
7.5 How long are the antitrust review periods?
For an intermediate merger, the SEC review must be completed within 20 working days, although the SEC may extend this period by up to 40 working days. The SEC's review period for large mergers is 40 working days.
7.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
The provisions of section 118 of the ISA and Rule 423 of the current SEC rules apply to Nigerian companies where they engage in a merger, acquisition or business combination.
The extent of the discretion conferred on the SEC by the applicable legislation to determine whether a transaction is likely to have a substantial effect on local competition has not been clarified. What is clear is the obligation to notify the SEC of, and to obtain its prior review and approval for, intermediate and large mergers, acquisitions and business combinations.
7.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
Nigerian law generally permits 100% foreign ownership other than in the production of arms, ammunitions, narcotic drugs, military and paramilitary wears. There are, however, sectoral restrictions such as local content restrictions on foreign participation in the petroleum, energy, advertising and maritime sectors.
In certain sectors such as the banking, insurance, maritime, telecommunications, petroleum and energy, the prior approval of the relevant regulator will also be required for transactions involving the acquisition of shares or voting rights that exceed prescribed thresholds.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in your jurisdiction?
The principal laws regulating corruption and similar offences are: the Corrupt Practices and other Related Offences Act (CPA); the Criminal Code Act (CCA); the Economic and Financial Crimes Commission Act (EFCC Act); and the Money Laundering (Prohibition) Act (MLA).
8.2 What are the potential sanctions and how stringently have they been enforced?
Any person convicted under the CPA for corruptly receiving any property for themself or another, in relation to their acts or omissions in their official capacity is liable to imprisonment for seven years. The CCA contains similar penalties. Similar penalties apply for concealing a crime or frustrating the investigation of any suspected crime of corruption. Sanctions imposed under the EFFC Act include forfeiture of assets and freezing of bank accounts.
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
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Folake Elias Adebowale
Udo Udoma & Belo-Osagie
About the author
Folake Elias Adebowale is a partner at Udo Udoma & Belo-Osagie, where she co-heads its corporate advisory (mergers, acquisitions and corporate restructuring) team, and heads its private equity and oil and gas teams. She advises local and international clients, including multinationals, lenders, development finance institutions and top tier investors across various sectors on a diverse range of transactions and issues. She is ranked for her practice in these areas by the IFLR, Chambers and Who's Who Legal, and commended in The Lawyer's Africa Private Equity Elite Report.
Udo Udoma & Belo-Osagie
About the author
Mary Ekemezie is a senior associate on the firm's corporate advisory, private equity, M&A and labour and employment teams. She is a member of the team that advises private equity funds and other multinational investors and operators in connection with equity investments and financing transactions across a range of sectors. She co-led the team that advised a private equity firm in connection with the divestment of its shareholding in a manufacturing company. She is currently advising a multi-national beverage company in connection with the restructuring of its businesses in Nigeria and a private equity firm in connection with its proposed investment in a fertilisers manufacturing company.
Udo Udoma & Belo-Osagie
About the author
Olamide Omolaja is an associate on the firm's corporate advisory, private equity, M&A, power and infrastructure teams. He has advised strategic and financial investors on their investments in the Nigerian banking, oil & gas, manufacturing and consumer goods sectors. In 2015, he jointly led the team that advised the Kellogg Company on its acquisition of a 50% equity stake in Multipro Consumer Products Limited, a member of the Tolaram Group. He is also currently advising a private equity firm and a development finance institution in connection with a proposed acquisition of a petroleum products company and a related transport and haulage company.