Mergers and acquisitions are external restructuring options available to companies. In Nigeria mergers and acquisitions have been creating waves during the past few years due to the grim state of the economy. Most companies have been unable to continue their operations because of the bad state of economy and the adverse effect on these companies. Therefore, in some sectors of the economy, there has been government intervention to stabilize some of these companies; examples are 9 Mobile and Skye Bank (now Polaris Bank). Mostly affected in the mergers talks are banking and insurance companies. However, mergers and acquisitions are not just survival strategies to be used by a struggling corporate entity, but they have been used in so many cases to achieve company growth and expansion policies. In discussing these restructuring options it is paramount to comprehensively discuss each of their peculiarities.
MERGERS Mergers are processes whereby two or more previously autonomous companies come together under a common control. Mergers are important features of corporate structural changes. They have played an important role in the external growth in most of the leading countries in the world. A merger means any amalgamation of the undertakings or any part of the undertakings or interest of two or more companies or the undertakings of part of the undertakings of one or more bodies corporate; See Section 119(1) of the Investments and Securities Act. Thus, a merger occurs when a viable company takes over another company or two companies decide to merge to form a new company.
A merger maybe achieved by purchase or lease of the shares, interest or the assets of the other company in question or by amalgamation or combination with the other company. See  Section 119(2) of the Investments and Securities Act
CATEGORIES OF MERGERS Section 120 of the Investments and Securities Act provides for the categories of merger. They are;
- Small Merger
- Intermediate Merger
- Large Merger.
Rule 427 of the Securities and Exchange Rules 2013 provides for the thresholds of mergers. The threshold of small merger shall be below N1 Billion of the combined assets of the merging companies. The threshold of an intermediate merger shall be within N1 billion and N5 Billion of the combined assets of the merging companies. While a large merger must be above N5 billion; an example of a large merger can be seen in the merger between Access Bank and Diamond Bank. Mergers may further be categorized into;
- Horizontal Mergers; which is a merger between direct competitors. An example is the merger between Ecobank and Oceanic Bank.
- Vertical Mergers; which is a merger of firms in non-competitive relationship.
- Conglomerate Mergers; which involve companies in different industries.
Small Mergers Parties to a small merger are not required to notify the SEC and may implement the merger without approval unless the SEC expressly requires notification. The Securities and Exchange Commission may within 6 months after a small merger is commenced, require the parties to notify it of the merger where it forms the opinion that the merge may substantially prevent or lessen competition or cannot be justified on the grounds of public interest. See Section 122(3) Investments and Securities Act
Intermediate & Large Mergers The procedure for these types of merger is summarised in below;
- Pre-merger notification to the Securities and Exchange Commission for evaluation.
- File application with Federal High Court seeking an order to convene a court ordered meeting.
- Following the resolution of the shareholders after the court ordered meeting, the applicants shall file with the Securities and Exchange Commission a formal application of the merger.
- If the Merger is approved, the Securities and Exchange Commission informs the court by a statement in writing if it is approved wholly or if it is approved subject to conditions or prohibited.
- Court sanctions the merger scheme if approved and publication of the court order in the newspaper.
- Comply with post approval requirements.
- Post-Merger inspection by the Securities and Exchange Commission within 3 months after approval to ascertain the level of compliance with the merger scheme.
- Registration of the notice of merger with the Corporate Affairs Commission pursuant to Paragraph 53 of the Companies Regulations.
REFUSAL OF A MERGER APPLICATION A merger will be refused on the following grounds;
- If it will cause a substantial restraint in competition.
- It tends to create a monopoly in any line of business of the merging companies.
- It is otherwise obnoxious to public policy.
REVOCATION OF A MERGER APPROVAL The Securities and Exchange Commission may revoke its own decision to approve or conditionally approve a small, intermediate or a large merger if;
- The decision was based on incorrect information for which a party to the merger is responsible.
- The approval was obtained by deceit.
- A company concerned in the merger has breached an obligation attached to the decision. See Section 127 Investments and Securities Act
ACQUISITIONS An Acquisition is the purchase by one company of all or substantial interest of another company. Rule 421 of the Securities and Exchange Commission Rules define Acquisition as the takeover by one company of sufficient shares in another company to give the acquiring company control over that other company.
If an acquisition is targeted at acquiring more than 51% of the shares of the another company it becomes a merger. An acquisition bid must not target more than 30% of the shares of the other company.
Post-Acquisition Requirements After the completion of the acquisition, the following documents must be sent to the Securities and Exchange Commission;
- Executed share/asset purchase agreement
- Evidence of settlement purchase agreement
- Evidence of settlement of severance benefits of employees who may have lost their jobs as a result of the acquisition. See Rule 436 Securities and Exchange Commission Rules 2013
IMPORTANCE OF MERGERS AND ACQUISITIONS IN THE ECONOMY In business environment mergers and acquisitions have helped solving many business problems in an unconducive business climate. Among are the reasons for the following:
- Through mergers, companies obtain improved technological known how from the acquired company. Also, it can bring about standardized product specifications, enabling value analysis to be applied giving economics in tooling costs or improving after sales services.
- Large scale production – The amalgamation of two companies brings about an expansion of production. This is because after a merger or an acquisition a bigger company is formed.
- Diversification – When two companies merge i.e. if it is vertical or conglomerate, it creates a product line for diversification e.g. Nigeria Breweries Plc takeover of Schweppes.
- Survival – The desire to remain in business in a particular business line, may force a company to go for merger or acquisition e.g. the CBN policy for banks to have at least a N25 billion capital base has forced banks to merge.
- Acquiring additional and presumably better managerial personnel – Through mergers managerial talents can be acquired and due to its large nature, the company can offer better remuneration and better job opportunities due to their large nature.
CONCLUSION Undoubtedly, merger and acquisitions have played vital roles in the improvement of a depressed economy of Nigeria. It is due to the present economic depreciation in Nigeria that has prompted mergers and acquisitions as the best restructuring option amongst others for any concerned company. Companies therefore instead of winding up, or selling part of their assets prefer entering into arrangements like mergers and acquisitions.
Therefore, as long as the need for corporate growth exists for our economy and going by its merits, it is especially advised that mergers and acquisitions are the best options for corporations. Mergers and Acquisitions should not be seen as a solution to companies facing bankruptcy but should be seen as an opportunity for financially buoyant companies to take themselves to the next level.
Aruoriwoghene E. Oghounu is a legal Practitioner and Associate Partner at Sun Natha-Alade & Partners (SNATHAP)firstname.lastname@example.org Whatsapp line: 08155377099
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