Rules on Mergers_March 2010
NEW RULE /AMMENDMENTS TO THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION
Pursuant to Section 313(6) of the Investments and Securities Act, 2007, the following new rules and amendments are made by the Commission:
PART G: Regulation of Mergers, Takeovers and Acquisitions
Rule 227 – Definition
A new definition is created to read as follows:
“Partnership” means a voluntary relationship existing between two or more persons to carry on business as co-owners and share in the profit and loss.
Rule 228 – Scope of the Regulation
(iv) Any merger, Takeover, Acquisition or Business Transaction
undertaken by any Federal Government owned Agency pursuant
to statutory powers vested in it, shall in addition be subject to the approval of the Commission
A new Rule 229 (2)(c) is created to read as follows;
(c ) “Though the contemplated merger is likely to restrain competition,
one of the parties to the merger has proved that it is failing”.
Rule 230 – Exemptions
Sub- Rule (ii) is deleted and a new Sub-Rule (ii) is created to read as follows:
“In a small merger, the merging entities shall not be required to notify the Commission of that merger but shall be required to inform the Commission at the conclusion of the merger”.
Rule 231-Procedures for obtaining Approval for Mergers
Rule 231 (1) is amended to read as follows:
‘File with the Commission a merger notification for evaluation’.
Rule 231 sub rule (2) is hereby deleted.
Rule 232:Requirements for pre-merger notice
This heading is changed to read Rule 232 (A): Requirements for Merger Notification
New Rule 232(A)(v) is created to read as follows:
(v) “Where a party to a small merger is required by the Commission to notify it of the merger, documents forwarded shall be the same as those required for a merger notification”
New Rule 232(A) (vi) is created to read as follows:
(vi) “Extract of Board resolutions of the merging companies authorizing the merger duly certified by a Director and the Company Secretary”.
In addition to the existing requirements in Rule 232(A), the following requirements have been added:-
vii. A copy of the letter appointing the Financial Adviser(s);
viii. Copy of certificate of incorporation certified by the Company
ix. CAC Certified True Copy of Particulars of Directors
x. Letter of no object from company’s’ Regulators.(where
xi. The audited accounts of the merging entities for the preceding five
years or the number of years any of the companies have been in operation if less than five years;
xii. Applicable merger notification fee of N50, 000.00 (fifty thousand naira) per merging company (for intermediate and large mergers);
xiii. In the case of an intermediate or large merger a copy of the merger
notification shall be forwarded to:
a. any registered trade union that represents a substantial number of its employees; or
b. the employees concerned or representatives of the employees concerned, if there are no such registered trade unions.
xiv. Additional information to be disclosed in the Information Memorandum includes:
a) The actual and potential level of import competition in the
b) The ease of entry into the industry, including tariff and
c) The level and trends of concentration and history of collusion in
the relevant industry;
d) The degree of countervailing power in the market;
e) The dynamic characteristics of the relevant industry including
growth, innovation and product differentiation;
f) The nature and extent of vertical integration in the relevant
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;
h) Whether the merger will result in the removal of an effective
i) Any other information that the Commission may require in respect
of the Merger.
xv. Merger applications may be filed by separate financial advisers (registered as an Issuing House) or solicitor for each of the merging companies, provided that in case of a small merger one (1) financial adviser may be used.
A New Rule 232 (B) is created to read as follows:
Lower and Upper Thresholds of Mergers is provided as follows;
(1) “The lower threshold shall be below N250,000,000.00 of either combined assets or turnover of the merging companies, the intermediate threshold shall be between N250,000,000.00 and N5,000,000,000.00, while the upper threshold shall be above N5,000,000,000. 00”.
(2) “The determination of the threshold shall be by the combination of assets or turnover or the combination of both turnover and assets in Nigeria”.
New Rule 232 (C): Clearance of Scheme Document
A new Rule 232(C) is created to read as follows:
Prior to making an application for court ordered meeting in respect of intermediate and large mergers, the following documents should be filed for the review and clearance of the Commission:
i. letters of consent signed by an individual or duly notarized;
ii. Financial reports for the preceding five years or the number of years the company has been in existence, (where it has been in existence for less than five years);
iii. Any other document as may be required by the Commission.
A new sub-rule 232(ii) (f) is created to read as follows:
(f) “ a detailed write-up of proposed transaction contained in an information memorandum which shall include the following:
i. State the products or services that the merging entities sell or provide in, into or from Nigeria. In addition, identify any products or services that you believe are considered by buyers as reasonably interchangeable with, or a substitute for, a product or service provided in, into or from Nigeria by parties to the merger;
ii. For each identified product or service, state the geographic area (s) in Nigeria, in which the merging entities sell;
iii. For each identified product or service, identify and provide contact details of the top five producers or providers in each identified geographical area with the largest estimated turnover in value, and their estimated share of the total turnover during the last financial year;
iv. For each identified product or service, state the turnover in each of the identified geographical area during the last financial year;
v. For each identified product or service, identify and provide contact details for the merging entities’ five customers in each of the identified geographical area with the largest aggregate purchases in value during the last financial year;
vi. The business relationship among the merging entities in terms of the products or services they sell to one another as well as the value of those products and services sold during the last financial year.
g. The note shall also Indicate whether the merger will involve the following:
i. Transfer of all or part of the assets, liabilities, undertakings, including real and intellectual property rights;
ii. Transfer of shares or other interests.
h. Where a company involved in the merger transaction claims that it is failing, the following documents shall be forwarded:
i. Financial information demonstrating that the firm will be unable to meet its financial obligations in future;
ii. Information indicating that the failing firm would reasonably be expected to exit the market unless the merger is implemented.
Rule 233: Requirement for formal Approval
Existing appendix vii of Rule 233 ( c) dealing with Schedule of fees, was moved to Schedule I of the Rules and Regulations which generally deals with fees.
A new provision, which reads as follows:
“Proxy fees - N5, 000 per company for proxy materials”,
is created under Schedule I of the Rules and Regulations.
Rule 233 – Requirements for formal Approval – This heading should be replaced with “Clearance of Scheme Documents” and moved to newly created Rule 232 ( C) i.e. with all provisions under existing Rule 233 from pages 265-270 of the Rules and Regulations.
New Rule 233: Requirements for formal Approval
Documents to be forwarded:
a) Extract of the minutes of the court ordered meeting of the merging entities in support of the merger duly certified by a Director and the Company Secretary. The extract shall capture the consideration as approved by majority shareholders, representing not less than three – quarter (3/4) in value of the shares of members being present and voting either in person or by proxy;
b) Two copies of the scheme document duly signed by the parties to the merger;
c) Evidence of the executed resolutions passed at the separate Court – ordered meetings;
d) Scrutineers report showing the result of voting and total number of votes casts;
e) Stamped Power of Attorney of Directors who were absent at the separate court – ordered meetings (where applicable);
f) Evidence of clearance letter from the Federal Inland Revenue Services regarding any tax liability (where applicable);
g) Amended copy of the Memorandum and Articles of Association of the resultant company (where applicable).
Additional information to be included in new Rule 233
(h) CAC form showing Particulars of Directors;
(i) CAC form showing allotments (for private companies) only;
(j) Reporting Accountants’ Report on the financials and forecasts of the
(k) Evidence of payment of processing fee;
(l) Relevant SEC Form.
A New Rule 233(4) is created to read as follows:
Where all requirements have been fulfilled, the Commission shall inform the court, by a statement in writing whether the merger is approved, subject to conditions or prohibited.
Rule 234- Post Approval Requirements
Under existing Rule 234 , line 1, delete the word ‘final’ after the word ‘the’.
Rule 234(A) – Post Approval Requirements
The following new provisions were added to the existing Rule 234(f):
(4) Treatment of dissenting shareholders;
(5) Submission of gazetted copy of the court sanction;
(6) Evidence of allotment of shares;
(7) Evidence of settlement of severance benefits of employees,
New Rule 234(B): Post Merger Inspection
A new Rule 234(B) is created to read as follows:
Three (3) months after approval by the Commission, a post merger inspection shall be carried out by the Commission to ascertain the level of compliance with the provisions of the scheme documents.
Documents to be inspected include:-
i. The Board Minutes book;
ii. Original Certificate of Incorporation of the resultant company (where applicable);
iii. Copy of the amended Memorandum and Articles of Association (where applicable);
iv. Severance benefits of employees of the dissolved companies;
v. Final settlement of shareholders;
vi. Dispatch of share certificates;
vii. Settlement of debts;
viii. Report of shareholders representatives on the merger;
ix. Any other document that may be required by the Commission from time to time.
New Rule 234(C): Power to Order the Break up of Company
A new Rule 234(c) is created to read as follows:
(1) Where the Commission determines that a company constitutes a
restraint to competition or creates a monopoly in a particular industry, the Commission shall order the breakup of the company.
Before the Commission makes a determination to order the break up, it shall:
a. Communicate the basis of its observation to the company in writing and the company will be expected to forward their response to the Commission within thirty (30) days of receipt of the letter;
b. Review the company’s response and where it is found that competition is restrained, senior officers of the company shall be invited to further defend their position;
c. Communicate the final decision of the Commission to the Company.
(2) The Commission shall forward its decision to the Court for sanctioning.
A new Sub-Rule(3) is created to read as follows:
(3) The following shall be considered as business practices capable of restraining competition and creating monopoly:
i. The entry into agreements with other companies or business undertakings which have as their object or effect the prevention, restriction or distortion of competition in any part of the Nigerian market, and in particular those which:
a. Directly or indirectly fix purchase or selling prices or any other trading conditions;
b. Limit or control production, markets, technical development, or investment;
c. Share markets or sources of supply;
d. Apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
e. Make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
ii. The abuse by companies or business enterprises of dominant positions achieved by them in any part of the Nigerian Market irrespective of how such positions of dominance were achieved. Such abuse may, in particular, consist in:
a. Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
b. Limiting production, markets or technical development to the prejudice of consumers;
c. Applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
d. Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.
METHOD OF CALCULATION OF ANNUAL TURNOVER OR ASSETS TO BE APPLIED IN RELATION TO MERGER THRESHOLDS
A new Schedule X was created to include the following:
“METHOD OF CALCULATION OF ANNUAL TURNOVER OR ASSETS TO BE APPLIED IN RELATION TO MERGER THRESHOLDS”.
Nigerian Statement of Accounting Standards (SAS) 30 Apply.
For the purpose of Section 120 of the Investments and Securities Act (ISA), 2007, the assets, and the turnover, of a firm must be calculated in accordance with the Nigerian Statement of Accounting Standards (SAS)30, subject only to the following provisions as contained in this schedule.
METHOD OF CALCULATION OF ASSETS
For the purpose of Section 120 of the Investments and Securities Act (ISA), 2007, the asset value of a firm at any time is based on the gross value of the firm’s assets as recorded on the firm’s balance sheet at the end of the last audited financial year, subject to the provisions of sub-items (1) and (2).
1. In particular:
(a) the asset value equals the total assets less any amount shown on that balance sheet for depreciation or diminution of value;
(b) the combined assets are to include all assets on the balance sheets of the firms concerned, including any goodwill or intangible assets included in the merging entities balance sheets;
(c) no deduction may be taken for liabilities or encumbrances of the firm;
(d) the calculation of the combined assets shall be based on the combined assets of the companies before the merger. The combined assets, excludes any goodwill or intangible assets that would arise as a result of the merger;
(e) the combined assets are not adjusted for any investments the acquiring firm might have in the target firm or amounts due by one firm to the other; and
(f) assets in Nigeria includes all assets arising from activities in the country.
2. If, between the date of the financial statements being used to calculate the asset value of a firm, and the date on which that calculation is being made, the firm has acquired or any subsidiary company, associated company or joint venture not shown on those financial statements, or divested itself of any subsidiary company, associated company or joint venture shown on those financial statements-:
(a) The following items must be added to the calculation of the firm’s asset value:
i) The value of those recently acquired assets; and
ii) Any asset received in exchange for those recently acquired asset.
(b) The following items may be deducted in calculating the firm’s asset value if these items were included in the firm’s asset value:
i) The value of those recently divested assets at the date of their divestiture.
METHOD OF CALCULATION OF TURNOVER
For the purpose of Section 120 of the Investments and Securities Act (ISA), 2007, the annual turnover of a firm at any time is the gross revenue of that firm from income in, into or from Nigeria, arising from the following transactions and events as recorded on the firm’s income statement for the last audited financial year, subject to the provisions of sub-items (1), (2) and (3):
(a) the sale of goods;
(b) the rendering of services; and
(c) the use by others of the firm’s assets yielding interest, royalties and dividends.
1. In particular:
(a) When calculating turnover, the following amounts may be excluded:
i) any amount that is properly excluded from gross revenue in accordance with any relevant SAS;
ii) taxes, rebates or any similar amount calculated and paid in direct relation to revenue, as for example, sales tax, value added tax, excise duties, and sales rebates, may be deducted from gross revenue;
(b) no adjustment is made for any amount that represents a duplication arising from transactions between the acquiring firm and the target firm;
(c) revenue excludes gains arising ‘from non-current assets and from foreign currency transactions; and
(d) for banks and insurance firms, revenue includes those amounts of income required to be included in an income statement in terms of any relevant SAS, but excluding those amounts contemplated in paragraph (c).
2. If, between the date of the most recent financial statements being used to calculate the turnover of a firm, and the date on which that calculation is being made, the firm has acquired any subsidiary company, associated company or joint venture, asset, shares or any other interest not shown on those financial statements OR divested itself of any subsidiary company, associated company, joint venture, assets, shares or any other interest shown on those financial statements;
(a) the turnover generated by those recently acquired assets, must be included in the calculation of the firm’s turnover if this turnover should in terms of any relevant SAS be included in the turnover of the firm;
(b) the turnover generated by those recently divested assets in the immediately previous financial year may be deducted from the firm’s turnover if this was included in the turnover of the firm.
3. If the financial statements used as a basis for calculating turnover or the turnover included in terms of sub item (2) are for more or less than 12 months, the values recorded on those statements must be pro-rated or extrapolated to the equivalent of 12 months.
F. The provision of schedule vii dealing with the Rules of Procedure of the Commission’s Administrative Proceeding Committee were amended to conform with the general rules of fair hearing.
MADE AT ABUJA THIS 24th DAY OF MARCH 2010