1.0 Introduction
The cumulative value of mergers and acquisitions transactions in Nigeria is projected to be an estimated $3.40 billion by the end of 2024 and is poised for an annual upward trajectory. Mergers and acquisitions play a major role in the Nigerian and global markets. Considering the competitive nature of most operational markets, the relationship between business transactions and competition has developed to be intimately intertwined. As Nigeria’s economy expands over the years, the frequency of mergers and acquisitions has simultaneously increased.
Mergers and acquisitions have proven to be an instrumental tool for achieving business expansion, market dominance, and brand visibility. Through these corporate transactions, businesses can pool resources to create new markets, expand their market reach, and influence economic landscapes.
1.1 Concept of Mergers and Acquisitions
A merger is a corporate agreement that ties two or more existing independent businesses into a single legal entity. During a merger, the parties involved combine resources to operate as a single entity. Although mergers and acquisitions are two corporate strategies cut from the same clothes, they have distinctive features. The parties to a merger are referred to as the merging parties. An acquisition involves the takeover of a business by another. During this process, one of the parties absolves the other business(es) while still retaining its legal identity. The key difference between a merger and an acquisition is its outcome.
The parties to an acquisition include the acquirer, which is the absolving party; the target, which is the party being purchased; and the seller, which is the selling party in a minority stake acquisition. Companies engage in mergers and acquisitions for a myriad of reasons. A company seeking access to financial resources, technology, and human capital can engage in mergers and acquisitions. Another reason is an attempt to diversify their cash flow and gain a competitive edge.
A minority stake acquisition occurs when shares are purchased by a shareholder other than the controlling shareholder, conferring less than 50 percent ownership. Although a minority stake acquisition does not confer full control, it is a strategic partnership for accessing resources and market expansion. The acquirer can gain access to financial returns and operational data without full ownership.
1.2 Regulatory Framework for Notification of Minority Stake Acquisition in Nigeria
The Federal Competition and Consumer Protection Act 2018 (“the Act”) is one of the principal legislation governing mergers and acquisitions in Nigeria. In pursuit of this responsibility, the Federal Competition and Consumer Protection Commission (“the Commission”) has issued various regulations guiding mergers and acquisitions, including Merger Review Guidelines 2020 (“the Guideline”), Abuse of Dominance Regulations 2022 (“the Regulation”), and the Merger Review Regulations 2020 (“the Review Regulations”)
Section 92 (1)(a) of the Act defines a merger as follows; “for the purpose of this Act, a merger occurs when one or more undertakings direct or indirect control over the whole or part of the business of another undertaking.” Section 92 (1)(b)(i) of the Act further states that a merger contemplated in paragraph (a) may be achieved in any manner, including through the purchase or lease of the shares, an interest or assets of the other undertaking in question. Section 92 (2)(f) of the Act is to the effect that an undertaking would be said to have control over the target if it 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 over the business of another undertaking.
To provide clarity on Section 92 (1)(a) of the Act, Article 6 of the Review Regulations provides that the acquisition of shareholding or voting rights above 25 percent confers upon the acquirer a rebuttable presumption of the ability to materially influence policy, which is a primary factor the commission considers in determining if a transaction is a relevant merger situation. Relying on this, the acquisition of 49 percent of shares in the target may be considered a merger according to the regulatory framework. This is because the acquisition fulfills the condition of purchasing shares and acquisition of shares above 25 percent, which confers the potential ability to materially influence the target’s policy. However, the purchase of shares less than 25 percent would not be considered a merger by the Commission.
Section 93, subsection 1 of the Act expressly provides that:
“subject to the notification threshold to be determined from time to time as set out in this Part, a proposed merger shall not be implemented unless it has first been notified to and approved by the commission.” On this note, Article 13 of the Review Regulations imposes a standstill obligation to the effect that parties to a merger shall not take any steps to implement the merger prior to, or after notification until it is approved by the Commission.
In determining the notification threshold, Article 11 of the Review Regulations provides that small mergers are not notifiable unless the parties voluntarily notify the Commission or where the Commission considers that the merger may substantially prevent or lessen competition, as similarly provided in Section 95(1)(a)(b)(c) of the Act. Mergers with cumulative asset value below one billion Naira are not required to notify the Commission unless the Commission requires notification. Futhermore, Article 12 of the Review Regulations is to the effect that where an undertaking is involved in a large merger, an application shall be made for the approval of the Commission before implementation.
Therefore, the Federal Competition and Consumer Protection Commission mandates notification and approval prior to a larger merger and a small merger that may substantially prevent or lessen competition. However, parties to a small merger may notify the commission voluntarily if it does not prevent or lessen competition.
To determine whether a transaction constitutes a small merger or large merger, Section 92 (4)(a)(b) of the Act is to the effect that a small merger has a value that is at or below the threshold stipulated by the Commission while a large merger has a value above the threshold stipulated by the Commission through its regulations.
1.3 Notification Process of Acquisition Under the Federal Competition and Consumer Protection Commission
A small merger may take no further step towards its implementation and be required to notify the Commission within six months after the merger is implemented if the Commission finds it likely to substantially prevent or lessen competition. This notification would be published within five business days after its receipt by the Commission as provided in Section 95(4) of the Act. Within 20 days after the notification process has been complied with, the Commission may extend the consideration period up to 40 days, for which the Commission would issue an extension notice. The merger would be considered approved if the Commission fails to issue an extension notice.
Otherwise, the Commission would issue a report approving the merger, approving it subject to any conditions, prohibiting its implementation if it has not been approved, or declaring it prohibited. The Commission shall publish an official gazette of any of its decisions. A merger would also be considered approved if, after the extension period, the Commission did not issue a report.
The Commission shall publish the notification for a large merger within five business days after its receipt. The primary acquiring party and the primary target shall provide a copy of the notification to a registered trade union of the employees or directly to the employees. The violation of this process by parties to a large merger is an offence liable on conviction to a fine not exceeding l0% of the turnover of the undertaking in the business year preceding the date of the commission of the offence or to such other percentage as the court may determine having regard to the circumstances of the case as provided for in Section 96 (7) of the Act.
1.4 Applicable Fees for the Notification Process
All merger applications are subject to a fee of fifty thousand Naira per undertaking, while the applicable fee for an expedited procedure service is ten million Naira. However, the applicable fee for a negative clearance is two million and five hundred thousand Naira.
The applicable fees for notification are calculated in three tiers based on the total value of the deal or the combined annual turnover of the merging companies, whichever is higher. As provided for in Schedule 1 of the Merger Review Regulations 2020, the applicable fees for a merger notification process are as follows:
● 0.3 percent of the first 500 million from the cumulative combined turnover of the merging parties or 0.3 percent of the first 500 million from the transaction value.
● 0.225 percent of the next 500 million from the cumulative combined turnover of the merging parties or 0.3 percent of the next 500 million from the transaction value.
● 0.15 percent of the remaining sum from the cumulative combined turnover of the merging parties or 0.75 percent of the remaining from the transaction value.
1.5 Conclusion
Mergers and acquisitions can be financially taxing ventures, so parties involved can explore various means of funding, including debt financing, equity financing, seller financing, and leveraged buyouts. An acquirer or merging party’s financing choice can be determined by their peculiar circumstances regarding the transaction value, market conditions, and existing financial ability.
After completing the notification process with the Commission, parties are expected to comply with other regulatory and relevant bodies, including the Corporate Affairs Commission, Securities and Exchange Commission, sector-specific regulatory bodies, and ECOWAS or AfCFTA, where applicable.
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