The oil price recently fell as low as $46 a barrel having hovered between $50-$60 per barrel since the beginning of the year.  It may yet fall further given the crisis rocking China’s capital market or could rebound starting a welcome recovery. The current low prices is putting tremendous strain on the cash flow of all oil companies irrespective of size begging them to ask serious questions of themselves as to their survival in the near and/or long term. Some of these questions include but are not limited to:

(a) the length of time it would take for oil prices to begin to rise from their current slump.

(b) the necessary cuts required in adapting to this new low price environment.

(c) Is the industry likely to witness a wave of mergers and acquisitions to both scale and capture growth positions at the current low prices or will the focus be more on high margin lower risk assets to strengthen cash flow. 

The International Oil Companies (“IOC”) operating in Nigeria and Nigerian independents are not immune from the vagaries of the global oil market. Their fortunes are made worse by a number of factors including but not limited to the non-passage of the Petroleum Industry Bill (PIB) and the inability of NNPC to meet its cash call obligation under its various joint ventures. It is perhaps in anticipation of these present circumstances that IOC’s such as Shell and Chevron, as far back as 2010, commenced divesting assets they may have deemed as higher cost assets with Nigerian independents snapping them up in the hope of having a firmer foothold in upstream activities.

What may have been seen as a good opportunity for Nigerian independents may up until last year be turning out to be a nightmare for some of these companies. The low oil price is beginning to affect their balance sheets with some struggling to meet their debt obligations. Perhaps, and as a means of survival, we may begin to see mergers and acquisitions as a crucial part of the solution for both the IOCs and Nigerian independents operating in the oil and gas sector in Nigeria. On the international scene and from an IOC perspective, we have already seen Royal Dutch Shell leading the way with its proposed $55 billion takeover of BG. If the current decline in oil prices continues on a scale compared to that of 1998/99 we may see another wave of mega mergers akin to that of the super majors like Exxonmobil and TotalElfFina. On the domestic front, plunging oil prices has forced Afren, a UK company with a subsidiary in Nigeria, into administration with the Nigerian assets in its portfolio up for sale. Mid- Western Oil and Gas Limited also recently pulled out of the proposed acquisition of Mart Resources perhaps to ensure it accesses Mart’s Nigerian assets at a lower cost.

With debt pressures mounting on the recent purchasers of the IOC divested assets, it seems inevitable that a new wave of industry consolidation will soon commence. In light of the foregoing and the impending flurry of consolidation activities in the sector, it is important that stakeholders understand the legal framework for mergers and acquisitions in Nigeria.

Regulatory Framework

The principal Legislations and Regulations governing Mergers, Acquisitions and Takeovers (“M&A”) in Nigeria are the Investment and Securities Act, 2007 (“ISA”); the Companies and Allied Matters Act (“CAMA”) LFN 2004 and the Securities and Exchange Commission Rules and Regulations, 2013 (“SEC Rules”). In addition to these, there are sector specific Legislations and Regulations relating to M&A such as the Petroleum Act Cap P10, LFN 2004; Central Bank of Nigeria Act, 2007 and the Banks and Other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria, 2004 regulating M&A in the banking and financial sectors; the Electricity Power Sector Reform Act 2005 regulating the nascent electricity sector in Nigeria; The Insurance Act, 2003; the Companies Income Tax Act[ and the Nigerian Communication Act  No 19 Cap N97 LFN 2004 regulates M&A in the telecommunications sector.

The Securities and Exchange Commission (“SEC”) , by virtue of the ISA, exercises regulatory oversight over all forms of business combinations between or among all private companies, all public companies, partnerships and transactions consummated under the authority of any Federal or State Government Agencies. 

However, holding companies acquiring shares solely for the purpose of investment without intent to use the acquired shares for voting or causing a substantial restraint of competition or create a monopoly are exempted from the application of the ISA. This exemption is somewhat vague and may lend to interpretational issues. Firstly, the section is silent on who determines whether the transaction is solely for investment purpose- the merging parties or SEC as regulator? Secondly, one is hardly able to exclude the possibility that parties may consummate an acquisition that can restrain competition but present the transaction as being solely for investment purposes. It is hoped that this lacuna would be addressed in a subsequent review of the Act.


The ISA and the SEC Rules classifies Mergers into three broad categories: Small, Large and Intermediate. In determining whether a merger or proposed merger is small, large or intermediate, SEC periodically prescribes a lower and upper threshold of mergers. The extant SEC Rules provides that, to qualify as a small merger, either the combined assets or turnover of the merging companies must be below N1,000,000,000.00 (One Billion Naira). The threshold for an intermediate merger is between N1,000,000,000.00 (One Billion Naira) and N5,000,000,000.00 (Five Billion Naira) whilst the threshold for a large merger is any value above N5,000,000,000.00 (Five Billion Naira).

1. Small Merger

The parties to a small merger do not require the approval of SEC before the commencement of the merger procedure. However, SEC reserves the right to, within six months from the commencement of the small merger process, request formal notification from the parties where SEC is of the opinion that the proposed mergers may substantially prevent or lessen competition and/or such merger cannot be justified on the grounds of public interest . The parties may elect to voluntarily notify SEC at any time during the merger process and are required, upon successful completion to notify SEC of the completion .
The Procedure for small mergers is set out in Section 122 as follows:

a.    Parties notify SEC (if required to). Where parties are required to notify SEC, they cannot proceed until SEC’s approval or conditional approval is obtained.

b.    Where the parties are required to notify SEC and after they, the parties, have fulfilled their notification requirement, SEC may within 20 working days notify the parties in the prescribed manner of its:

i.    approval of the merger;
ii.    approval of the merger subject to any conditions;
iii.    prohibition of the merger , if it has not been implemented; and
iv.    if already implemented, a declaration that the merger is prohibited.

c.    SEC may extend the period within which to consider the merger by a single period, not exceeding forty (40) working days in which case it must issue an extension certificate to the parties. Upon the expiration of the twenty (20) working days or the expiration of the extension, if SEC has not notified the parties of its decision, the merger shall be deemed to have been approved.

d.    SEC shall publish a notice of its decision in the Gazette and issue written reasons for its decision if it (a) prohibits or conditionally approves the merger (b) is requested to do so by a party to the merger.

e.    Where the merger is approved the parties shall apply to the Federal High Court (“FHC”) to sanction the merger and once this is done it becomes binding on the parties.

2. Intermediate and Large Mergers

The parties to an intermediate or large merger are obligated before commencement to notify SEC of the proposed merger and obtain prior approval, with or without conditions. The procedures for intermediate and large mergers are set out in Sections 123-126 of the ISA and they are as follows:

a.    The parties, the primary acquiring company and the primary target company, shall each send pre-merger notices to SEC in the prescribed form. A copy of the said notice is to be sent to any registered trade union that represents a significant amount of the employees or any employees or representatives concerned where there is no such trade union.

b.    As part of its oversight functions, SEC may investigate or assign an inspector(s) to investigate the proposed merger and may require that any of the parties provide additional information.

c.    In respect of intermediate mergers, SEC is to within 20 working days after all notification requirements have been met by the parties, issue a certificate either (a) approving the merger (b) approving the merger subject to some conditions or (c) prohibiting the implementation of the merger . As with small mergers, SEC may extend the period within which to consider the merger, provided that it issues an extension certificate to the parties and upon the expiration of the 20 days or the extended period, if it fails to issue a certificate, the merger is be deemed to have been approved.

d.    SEC is to publish a notice of its decision in the Gazette and issue written reasons for its decision if it (a) prohibits or conditionally approves the merger (b) is requested to do so by a party to the merger.

e.    For large mergers, SEC is required to refer the notice filed by the parties to the FHC and within forty (40) working days after the parties have fulfilled the prescribed notification requirements, forward to the court a statement in writing stating whether the merger was approved, approved subject to conditions or prohibited.

The merger notice to SEC is typically accompanied with the following documents: (a) Completed Merger Notification Form (b) A joint letter of intent from the merging entities (c) Extract of Board Resolutions of the merging entities in support of the merger duly certified by a Director and the Company Secretary. (d) A copy of the letter appointing the financial adviser(s), (e) Certificate of Incorporation certified by the Company Secretary, certified true copies of Form CAC 7, and Memorandum and Articles of Association of the merging entities. (f) A letter of No objection from the Companies Regulator(s) (where applicable) (g) The Audited Account of the merging entities for the preceding five (5) years or the number of years the Companies have been in operation, if less than five (5) years. (h) Evidence of payment of the prescribed filing fee and (i) Information Memorandum.

It is instructive to note that the Act gives SEC the powers to revoke its decision to approve a small, intermediate or large merger if it is discovered that any of the parties provided incorrect information or an approval was obtained by deceit or a breach of an obligation attached to the merger by any of the merging parties.

The Scheme Document

This is the principal document in a merger transaction which contains corporate and other information about the merging entities. Typically the scheme document would, amongst other things, provide the following information:
1.    Separate letters from the Chairmen of the merging companies addressed to their respective shareholders.
2.    Explanatory statement to the shareholders by the joint financial advisers, addressing the following:
a)    The proposal.
b)    Conditions precedent.
c)    Reasons for the proposal.
d)    The synergies/ benefits.
e)    Plan for employees.
f)    Capital gain tax.
g)    Approved status.
h)    Meetings and voting rights.
i)    Instruction on proxies.
j)    Settlement and certificate
k)    Information regarding each of the merging companies.
l)    Recommendations
m)    Appendices.


The SEC regulates acquisitions for both private and public unquoted companies. The procedure for an acquisition involves the acquirer filing a letter of intent through a registered capital market operator. The letter of intent is to be accompanied by the following documents:

1)    Two (2) draft copies of Information Memorandum;
2)    Extracts of board resolutions of the acquirer and the acquiree agreeing to the acquisition signed by the company’s secretary and a director. (where applicable);
3)    The recent CAC certified true copy of the Memorandum and Article of Association of the acquirer and the acquiree;
4)    The certificate of incorporation of the acquirer and the acquire, certified by the company secretary;
5)    Extracts of shareholders resolution of the acquirer and the acquiree to be signed by a director and company secretary;
6)    Summary of the claims and litigations of the company to acquired;
7)    A copy of “No Objection” letter from the relevant regulatory body (where applicable);
8)    Copies of letters appointing the financial advertiser(s);
9)    CAC certified form showing particulars of directors and allotment of shares of the acquirer and the acquiree;
10)    Notarized consent of directors of the acquirer and the acquire;
11)    Financial services agreement between the acquirer and the acquiree and their respective Financial Advisers;
12)    Share purchase agreement and any other relevant agreement executed between the acquirer and the acquiree;
13)    Evidence of payment of prescribed fees;
14)    Annual report and accounts of both companies for the proceeding period of five (5) years or a shorter period of three (3) years for private companies and those that have been operating for less than five (5) years;
15)    Source of fund to finance the acquisition must be clearly disclosed and supported by documentary evidence; and
16)    Report of valuation shares/assets (where applicable).

The SEC Rules also makes provision for the publication of the acquisition in two national newspapers.

With respect to dissenting shareholders, Rule 438 of the SEC rules stipulates that dissenting shareholders are to be treated as contained in Sections 146 &147 of the ISA 2007. However the recent amendment to the SEC Rules is silent as to whether the provision empowering the dissenting shareholders to lodge a complaint to SEC will apply in the case of an acquisition.

The quantity/value of shares that is considered sufficient to confer control is usually fixed by law. By virtue of section 131(1) ISA, acquisition of between 30 and 50 %( or a lower or higher threshold as may be prescribed by SEC from time and to time) of the rights of the target company’s called up shares by individual or company qualifies as a takeover¬.
A takeover bid is dispatched to shareholders of the target company in order to acquire shares of any class, attain sufficient shares so that the target becomes subsidiary or gains control over the company. By virtue of section 133 (4), a takeover bid cannot be made for a private limited liability company. Further, a bidder is required by virtue of Rule 445 (4) SEC Rules 2013 to publish its takeover bid in at least 2 (two) national daily newspapers. This is to serve as a notification to the general public of its intention to offer a takeover bid for the target company. In addition this, SEC rules also mandates a bidder to make an announcement on the floor of the stock exchange of their intention to make a takeover bid to the target company.

Procedure for Takeover:
1. Due Diligence
After a company identifies its target, it appoints professional advisers ranging from lawyers, to accountants, environmental consultants, pension advisers to carry out thorough investigations on the target. Due diligence is carried out to provide an accurate reflection of the company’s status. The target may also want to be prudent and carry out due diligence on the bidder. It is advisable that the bidder also carries out thorough investigations of the operations and debt exposure of the target, thereby diminishing chances of future liability due to errors in representations and warranties
2. Shareholders discussions
The bidding company shall ascertain its bidding price and set out to make provisions for the necessary finances in implementing the bid. Shareholder with majority holdings may initially have an informal discussion on the takeover bid before a board meeting is scheduled where the formal resolution will be made to set the bid in motion.
3. Authority to Proceed
By virtue of the provisions of the ISA and the SEC Rules, a takeover bid cannot be made until SEC has given its authority to proceed. The bidding company makes an application to SEC providing documentation and reports in a prescribed form by the Regulations. Where SEC requires further information from the bidder, it would make a request for the additional information and subject to the conditions in sub section 6, SEC may grant its authority to proceed.
The authority to proceed with a bid granted by SEC is for a period of three months subject to renewal upon application by the person making the bid. Such application for renewal is required to be made at least fourteen (14) days before the expiration of the three months and the renewal shall be for a period of three months.

4. Registration of bid with SEC
A copy of the takeover bid is required to be lodged with SEC for registration before it is dispatched to the shareholders of the target company. SEC will register the bid once it is satisfied with compliance with the ISA and SEC Rules, otherwise it may refuse registration of the bid and notify the applicant accordingly. Within thirty (30) working days of such notice of refusal, the company can appeal to the Investments & Securities Tribunal (“the Tribunal”) for a review of SEC’s decision .

5. Dispatch of bid
The bidding company would thereafter dispatch the takeover bid to each shareholder of the target company as well as SEC, at least 7 days before the date on which the takeover bid is to take effect. Each shareholder is entitled to accept or reject the bid. Upon receipt of the takeover bid, the directors of the target company are required to issue a directors’ circular to all shareholders of the company. The amendment to the SEC rules provides that such circular must state interalia, the particulars of the bidder; the number of shares sought to be acquired; the effect of the takeover bid on the company’s operations and its employees; and the directors’ opinions and recommendations on the takeover bid. This amendment seeks to ensure that the directors of the target company proffer their opinion and recommendations to shareholders on the likely effect of the takeover to the company.
Where majority shareholders, holding no less than 90% of the shares subject to be acquired, have accepted the bid the ISA provides that the acquiring company may within one month after the date of the acceptance of the shares, give notice to the dissenting shareholders that the takeover bid has been accepted, it would or have paid off those who accepted the bid, and that the dissenting shareholder has to elect whether to be paid the way the other shareholders were paid or prefers that his shares to be valued and a fair value paid to him. However, with the recent amendments to SEC Rules the dissenting and aggrieved shareholders can now lodge a complaint with SEC.

6. Announcement of bid
The acquiring company may now proceed with announcing the bid and commence implementing marketing campaigns. There may be need for adjustment of the bid due to the reactions of the target and market. The acquiring company may proceed with payment of considerations when the acceptance is received within the prescribed period. With a successful bid, all post bid requirements will be fulfilled as well as resolutions on the issues with dissentients.
a)    Separate extract of board resolutions of the merging companies in support of the merger duly certified by a director and the company secretary.
b)    Copy of letters notifying the trade union of the relevant industry of the intention of the companies to merge (required for mergers).
c)    A copy of the letter appointing financial advisers.
d)    Certificate of incorporation certified by the company secretary.
e)    Certified True Copies of Form CAC 7, CAC 2. (required for private companies)
f)    Memorandum and articles of association of the merging companies.
g)    A letter of “No Objection” from the Companies’ Regulator(s). (where applicable)
h)    The audited accounts of the merging entities for the preceding five years or the number of years the companies have been in operation if not up to five years.
i)    Evidence of payment of filing fees.
j)    Draft financial services agreement between the merging entities and their financial advisers.
k)    Evidence of increase in authorized share capital. (where necessary)
l)    Signed and notarized consent letters of directors and parties to the merger.
m)    Copy of merger implementation agreement and other agreements executed by the merging entities.
n)    Draft proxy forms for each of the merging companies.
o)    A letter of undertaking to file evidence of settlement of all tax liabilities of the Federal Inland Revenue Services (FIRS).
p)    Certificate of capital importation (where applicable).
q)    Reporting Accountant’s report on the financials and forecast of the merging entities.
r)    List of claims and litigation of the merging entities.
s)    Scheme Document/Information Memorandum/ Takeover Bid.

There are several pre-contract issues that parties to a proposed merger have to consider prior to the merger process. It is typical for the parties to enter into several pre-merger agreements such as Exclusivity Agreements , Memorandum of Understanding (“MOU”) and Confidentiality Agreements . These Agreements are aimed at regulating the relationships of the merging parties prior to conclusion of the merger process.

In addition to the pre-merger agreements, the parties would conduct due diligence on each other to ascertain that the assertions forming the basis of the proposed merger are indeed accurate. Broadly speaking, the due diligence process covers legal and financial issues pertaining to both companies.

The legal due diligence is to ascertain that the company is legally incorporated and is a going concern; that all required business permits and certification have been validly procured; that resolutions of board of directors, general meetings were validly made in consonance with the company’s memorandum and articles; compliance and regulatory issues, material claims against the companies, intellectual property, labour and employees issues.
Financial due diligence would typically seek to cover the parties’ accounts and monetary control systems; past and present financial performance compared against budgets; the parties’ viability in the short term and long term, against industry indicators; tax liabilities and other tax related implications as a result of the proposed deal; value of the assets and liabilities of the parties; product portfolio and competitors; performance ratios- profitability and earnings ratios, capital investments etc.; evaluation of synergy. ; a thorough credit check to ascertain the true financial position of the parties’ in meeting their liabilities.

Disclosure requirements are only relative to public companies in Nigeria. SEC maintain that a takeover bid be publicized in at least two national newspapers. SEC rules also mandate a bidder to make an announcement on the floor of the stock exchange of their intention to make a takeover bid to the target company.
The ISA on the other hand do not precisely require disclosure of mergers and acquisition transactions.
The recent amendment to the SEC Rules provides for penalty for non-compliance with the provisions of section 118(1) of the ISA and Rule 423(1) with respect to seeking the approval of SEC prior to commencing any form of business combination in Nigeria.
In the case of a merger amongst companies with combined assets or turnover between N1,000,000,000.00 and N5,000,000,000.00, contravention of section 118(1) of the ISA and Rule 423(1) attracts a penalty of not less than N1,500,000.00 and thereafter N5,000.00 for every day of continuing default or nullification of the said transaction from the date of consummation of the transaction.
Mergers amongst companies with combined assets or turnover of N5,000,000,000.00 and above shall be liable to a penalty of not less than N2,000,000.00 and thereafter N5,000.00 for every day of continuing default or nullification of the said transaction from the date of consummation of the transaction .
An acquisition in a private/ unlisted public companies with combined assets or turnover of N500,000,000.00 and above shall be liable to a penalty of not less than N1,000,000.00 and thereafter N5,000.00 for every day of continuing default or nullification of the said transaction from the date of consummation of the transaction.

The laws regulating mergers in Nigeria are extensive and as such parties contemplating transactions of this nature must ensure that the procedure followed is in compliance with the laws to avoid any sanctions.

August, 2015