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Structures and applicable law
How may publicly listed businesses combine?
Publicly listed companies may combine in Nigeria through acquisitions or schemes. An acquisition may involve the acquisition of the assets of the business of another company or the acquisition of shares of another company, whether through transactions on the securities exchange where the relevant public company is listed or in one-on-one transactions. In Nigeria, schemes that involve court sanctions are also utilised to effect business combinations whether within one company or between or among respective companies involved in the business combination. These methods of business combinations are effected through the provisions of applicable law.
The combination structure to be adopted is largely dependent on time considerations, tax efficiency, confidentiality and the relevant regulatory or sector peculiarities.
The consideration for these transactions may be cash, securities or other assets made available by the parties to the transaction.
What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?
The main laws governing business combinations and acquisitions of publicly listed companies are:
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
Cross-border transactions may be structured as direct acquisitions by foreign entities in Nigerian companies or indirect acquisitions in foreign targets that ultimately control or have stakes (whether significant or not) in the Nigerian targets. The degree to which Nigerian legislation is applicable depends largely on the size of the stake acquired and the degree of control the stake will give the acquirer in the Nigerian target.
The Federal Competition and Consumer Protection Act 2018 is the main legislation applicable to cross-border transactions. Further to this legislation, the Nigerian merger regulator, the Federal Competition and Consumer Protection Commission, developed the Federal Competition and Consumer Protection Commission Merger Review Regulations 2020 (Regulations) and the Federal Competition and Consumer Protection Commission Merger Review Guidelines 2020 (Guidelines). These Regulations and Guidelines prescribe the requirements for obtaining the approval of the Federal Competition and Consumer Protection Commission where an acquisition or other form of business combination occurs in a foreign jurisdiction and changes the ultimate control of Nigerian entities. The applicability of the Federal Competition and Consumer Protection Act depends on whether the transaction will result in a change of control in the Nigerian target.
Under this legislation, an undertaking has control over another undertaking if it:
Further, control is established where an undertaking is able to appoint or veto the appointment of a majority of the directors of the undertaking or, in the case of 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.
In addition to the main merger control legislation, there is also sector-specific legislation applicable to cross-border transactions depending on the relevant sector. This includes:
In addition, there are regulations and guidelines made pursuant to the main legislation that are also applicable to cross-border transactions. Further, the rules governing the securities exchanges where the relevant target public companies are listed will also be applicable. There is also ancillary legislation that is applicable after the cross-border transaction has taken effect but should be considered before the transaction is effective or while it is being structured.
There is ‘local content’ legislation that requires registration of foreign ownership or restricts the level of foreign participation in Nigerian targets. The Nigerian Investment Promotion Act 1992 requires foreign ownership of shares in a Nigerian company to be registered with the Nigerian Investment Promotion Commission. There are also statutes and regulations such as the Private Guard Companies Act 1986, Private Guard Companies Regulations 2018, the Civil Aviation Act 2006, the Nigerian Civil Aviation Authority Regulations, the Coastal and Inland Shipping Act 2003, the Nigerian Oil and Gas Industry Content Development Act 2010 that all have requirements for companies and licensees in their relevant sectors to be controlled by Nigerians.
This legislation, and the relevant regulations and guidelines, must be considered when determining the quantum of foreign ownership to be acquired in a Nigerian enterprise. Also, there are prohibited businesses for both foreigners and Nigerians, such as the production of arms, ammunition, narcotic drugs and psychotropic substances, military and para-military wears, etc, as contained in sections 17(2) and 31 of the Nigerian Investment Promotion Commission Act 1992.
The Foreign Exchange (Monitoring and Miscellaneous) Act 1995 regulates the importation and repatriation of capital in Nigerian businesses by foreigners.
Are companies in specific industries subject to additional regulations and statutes?
Business combinations involving specific industries are subject to additional sector-specific legislation and regulations, including:
Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?
The relevance of transaction agreements is determined by the business combination structure adopted by the parties. Where the parties elect to undertake a statutory scheme, there is no need for transactions agreements in the strict sense. The documents required are typical statutory forms and scheme documents, and documents related to court processes. The terms of a statutory scheme are set out in the scheme documents. The terms of the scheme are required to be approved by at least 75 per cent of the shareholders of the relevant company present at the court-ordered meeting convened for that scheme. In some cases, the parties may elect to enter into a transaction implementation agreement prior to the scheme being carried out. The transaction implementation agreement sets out implementation steps for the scheme and allows the parties to obtain representations and warranties from each other.
Where the transaction will trigger the mandatory takeover requirements of the Investments and Securities Act 2007, a bid document is the main transaction document. The bid document sets out the terms of the formal offer to the shareholders of the target company. As with a transaction implemented by a scheme, the transaction parties may also enter into a transaction implementation agreement or some other form of memorandum of understanding that will set out the implementation steps for the transaction.
Other transactions that do not fall within the above categories may be implemented through a share purchase agreement, share subscription agreement or an asset purchase agreement.
Schemes and takeover bids are governed by Nigerian mandatory statutes and are therefore implemented under Nigerian law. In other instances, the choice of governing law is based on the agreement of the parties.
Filings and disclosure
Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?
The relevant filings are usually determined by the transaction structure and whether or not a change of control will occur. Where a business combination will result in the change of control of the target, a filing is required to be made with the competition regulator, the Federal Competition and Consumer Protection Commission, to obtain a merger control approval.
A business combination involving a public company and implemented by a scheme must be filed with the Federal High Court, which will sanction the transaction.
Where a mandatory takeover bid is triggered, a filing with the Securities and Exchange Commission is required to obtain (1) authorisation to proceed with the takeover bid and (2) approval of the bid document and its registration.
In addition to the foregoing, filings will also be required with (1) the securities exchange where the securities of the public company are listed and (2) the regulator of the public company (where it operates in a regulated sector). Post-transaction implementation filings will also be required at the Nigerian companies’ registry – the Corporate Affairs Commission.
For all the filings stated above, the public company will be required to pay the relevant prescribed fees.
No stamp duty is payable on the instrument transferring shares. However, the Federal Inland Revenue Service charges ad valorem duties at 1.5 per cent of the purchase price on the relevant share sale or purchase agreement that governs the transfer of shares. Stamp duty is also chargeable at a similar rate in asset sale and share subscription agreements.
What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?
The Nigerian Stock Exchange requires companies listed on it to immediately disclose information to the market that might reasonably be expected to have a material effect on market activity, the price or value of listed securities and the financial condition of the listed entity. M&A activity affecting a listed company directly or indirectly is considered to be a material occurrence that should be disclosed to the public. The breakdown of information to be disclosed is not prescribed. However, the listed company is required to provide as much detail as possible to the public. The listed company is also required to disclose any transaction that results in the beneficial ownership of 5 per cent or more of its shares no later than 10 business days after the transaction occurs and, subsequently, in its annual report.
Generally, the company has the transaction disclosure obligation to the Nigerian Stock Exchange, the Securities and Exchange Commission and the relevant regulator. However, the Securities and Exchange Commission requires the directors, officers, employees and holders of at least 5 per cent of the securities of a relevant company to notify the Securities and Exchange Commission of any sale of their shares in the company or purchase of additional shares in the company no later than 48 hours after the activity.
In respect of filings with the Federal Competition and Consumer Protection Commission and the Securities and Exchange Commission, specific information is required to be disclosed. The information to be disclosed to the authority includes:
The above disclosures to the Federal Competition and Consumer Protection Commission and the Securities and Exchange Commission are required to obtain approval for the transaction and do not qualify as disclosures to the public.
What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?
The Securities and Exchange Commission requires holders of 5 per cent or more of any class of securities of a public company to notify it upon the sale of their shares in the company or acquisition of additional shares of the company within 48 hours of the transaction.
Also, the Companies and Allied Matters Act 2020 requires holders (whether holding directly or through a nominee) of at least 5 per cent of more of the issued shares of a public company to notify the public company of its holding and its full particulars within 14 days of becoming a substantial shareholder and within 14 days of ceasing to be one.
The above disclosure requirements are not affected by the company’s direct involvement as a party to the business combination. Companies separately have their disclosure obligations under the rules of the Nigerian Stock Exchange. Public companies are required to notify the Nigerian Stock Exchange upon the occurrence of a transaction that brings the beneficial ownership of the company’s shares to 5 per cent or more no later than 10 business days after the transaction. Companies are also required to disclose details of shareholders holding 5 per cent or more of its shares in its annual report.
Law stated date
Give the date on which the above content is accurate.
30 April 2020.
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