If not properly scrutinised and regulatory roles duly outlined, the Federal Competition and Consumer Protection Act, 2018 will only succeed in cutting down the powers of the Securities and Exchange Commission (SEC) on mergers of businesses, a copy of the Act seen by BusinessDay shows.
The Act which is now a public document seeks to establish the Federal Competition and Consumer Protection Commission and the Competition and Consumer Protection Tribunal.
Though the explanatory memorandum of the Federal Competition and Consumer Protection Act, 2018 claims it is for the promotion of competition in the Nigerian markets at all levels “by eliminating monopolies, prohibiting abuse of a dominant market position and penalising other restrictive trade and business practices”, the power to approve mergers is now granted to the new commission, instead of the Securities and Exchange Commission (SEC).
A merger occurs when one or more undertakings directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking, according to the Act in section 92(1)(a) of Part XII – Mergers, for the purposes of this Act. It adds that a merger contemplated in paragraph (a) of this subsection may be achieved in any manner, including through (i) the purchase or lease of the shares, an interest or assets of the other undertaking in question, (ii) the amalgamation or other combination with the other undertaking in question, or (iii) a joint venture.
Analysts at KPMG Nigeria said as hitherto applicable, the participants to a small merger do not need to notify the Commission unless the Commission specifically requests that they do so within six months of deal close.
“The Act also prescribes rules for large mergers as the only other type of mergers. The definition of mergers under the Act is all-encompassing, and includes acquisitions. Consequently, although the Act did not independently define ‘acquisitions’, it seems to have extended the term ‘merger’ to include ‘acquisitions,” the analysts said.
“Disappointingly, the Act does not go far enough to cover the current gap in the Investments and Securities Act (ISA) and SEC Rules around de-mergers, spin-offs, deconsolidations, etc. Consequently, there are still no provisions governing such transactions. Mergers under the Act are still regulated, using the size designation thresholds. However, the Commission has yet to issue guidelines to delimit the threshold. We envisage that the threshold under the ISA will be modified,” they said.
Section 92 (2) notes that for the purposes of subsection (1) of the Act, an undertaking has control over the business of another undertaking if it – (a) beneficially owns more than one half of the issued share capital or assets of the undertaking; and (b) is entitled to cast a majority of the votes that may be cast at a general meeting of the undertaking or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that undertaking.
Also in section 92(2) (c) the Act empowers the Commission to appoint or to veto the appointment of a majority of the directors of the undertaking; “(d) is a holding company, and the undertaking is a subsidiary of that company as contemplated under the Companies and Allied Matters Act; (e) in the case of an undertaking that is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust; (f) has the ability to materially influence the policy of the undertaking in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).”
Section 92(3) which is for the purposes of subsection (1), notes that an undertaking shall not be deemed to exercise control over the business of another undertaking where – (a) credit institutions or other financial institutions or insurance companies, the normal activities of which include transactions and dealing in securities for their own account or for the account of others, hold on a temporary basis securities which they have acquired in an undertaking with a view to reselling them.
The Act allows this happen provided that they do not exercise voting rights in respect of those securities with a view to determining the competitive behaviour of that undertaking or provided that they exercise such voting rights only with a view to preparing the disposal of all or part of that undertaking or of its assets or the disposal of those securities and that any such disposal takes place within one year of the date of acquisition; that period may be extended by the Commission on request where such institutions or companies Cap C20, LFN, 2004 can show that the disposal was not reasonably possible within the period set; or (b) control is acquired by an office-holder according to the laws of the Federation relating to liquidation, winding up, insolvency, cessation of payments, compositions or analogous proceedings.
Also, Section 92(4)(a) of this Act defines a “small merger” as a merger with a value at or below the threshold stipulated by the Commission by regulations; and (b) a “large merger” as a merger with a value above the threshold stipulated by the Commission by regulations.
Section 93 (1) say that subject to the notification threshold to be determined from time to time as set Commission to out in this Part, a proposed merger shall not be implemented unless it has first approve mergers been notified to and approved by the Commission. In section 93 (2), the Commission shall, by regulations, determine -(a) a threshold of annual turnover for the purposes of determining the categories of mergers contemplated under section 92 (4) of this Act; and (b) a method for the calculation of annual turnover to be applied in relation to the threshold determined under paragraph (a).
Subsection (3) says that prior to making a determination contemplated in subsection (2), the Commission shall publish, in the Federal Gazette, a notice- (a) setting out the proposed threshold and method of calculation for purposes of this section; and (b) inviting written submissions on that proposal; while subsection (4) notes that within 60 days after publishing a notice as required under subsection (3), the Commission shall publish, in the Federal Gazette, a notice setting out- (a) the threshold and method of calculation for the purposes of this section; and (b) the effective date of the threshold.
Section 94 (1) notes that when considering a merger or a proposed merger, the Commission shall-(a) determine whether or not the merger is likely to substantially prevent or lessen competition, by assessing the factors set out in subsection (2); (b) if it appears that the merger is likely to substantially prevent or lessen competition, then 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, or is likely to result from the merger, and would not likely be obtained if the merger is prevented, and (ii) whether the merger can or cannot be justified on substantial public interest grounds by assisting the factors set out in subsection (3); (c) otherwise, determine whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3).
When determining whether or not a merger or a proposed merger is likely to substantially prevent or lessen competition, the Commission shall assess the strength of competition in the relevant market and the probability that the undertakings in the market, after the merger, will behave competitively or cooperatively, taking into account any factor that is relevant to the competition in that market, including-(a) the actual and potential level of import competition in the market; (b) the ease of entry into the market, including tariff and regulatory barriers; (c) the level and trends (e) the dynamic characteristics of the market, including growth, innovation, and product differentiation; (f) the nature and extent of vertical integration in the market; (g) whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail; and (h) whether the merger or proposed merger will result in the removal of an effective competitor.
Where it appears that a merger or proposed merger is likely to substantially prevent or lessen competition, the Commission shall determine -(a) whether or not the merger or proposed merger is likely to result in any technological efficiency or other pro-competitive advantage which will be greater than, and offset, the effects of any prevention or lessening of competition, while allowing consumers a fair share of the resulting benefit; and (b) whether the merger or proposed merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (4).
When determining whether a merger or proposed merger can or cannot be justified on grounds of public interest, the Commission shall consider the effect that the merger or proposed merger will have on -(a) a particular industrial sector or region; (b) employment; (c) the ability of national industries to compete in international markets; and (d) the ability of small and medium scale enterprises to become competitive.
Section 95 (1) says that a party to a small merger is not required to notify the Commission of that merger unless the Commission requires it to do so in accordance with the provision of subsection (3); and notification requirements for a small merger may implement that merger without approval, unless it is required to notify the Commission in accordance with the provisions of subsection (3).
A party to a small merger may voluntarily notify the Commission of that merger at any time. Within six months after a small merger is implemented, the Commission may require the parties to that merger to notify it of the merger in the prescribed manner and form if, in the opinion of the Commission, having regard to the provisions of the section, the merger may substantially prevent or lessen competition.
Iheanyi Nwachukwu
