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Merger control by Securities and Exchange Commission: A Comparative analysis of Investments and Securities Acts 1999 and 2007

30 September 2009   |   4:21 am
I. Introduction THE month of June 2007 marked yet another significant point in the juridical development of the Nigerian capital market, with the enactment of a new Investments and Securities Act (ISA) to replace the pre-existing 1999 Act. The passage of the new ISA was the culmination of a long process of consultation starting with the inauguration of a panel of capital market experts under the Chairmanship of the House of Representatives' Capital Market Committee Chairman, Honourable Ahmed Aliyu Wadada, which panel's findings and recommendations later resulted in the ISA 2007.


The new Act has been the subject of some comments and discussions in various fora. On the positive side, the new Act is acknowledged to have clarified some of the ambiguities present in the pre-existing 1999 Act, in areas such as the scope of jurisdiction of the Investments and Securities Tribunal (IST), among others. The Act also came with some innovations such as the redefinition of the relationship between the Securities and Exchange Commission (SEC) and other sector regulators particularly in the area of merger transactions, and the introduction into securities law in Nigeria of the concept of mandatory takeovers under section 131 of the Act.

In addition to the above, the new Act has in its kit, enhanced competition law provisions. In a bid to fill a gap in our legal system of not having a competition law and competition authority in Nigeria, the Act effectively made the SEC an antitrust enforcer in addition to its traditional securities regulation function. Prior to the Act, Section 99 of the ISA 1999 mandated SEC to approve mergers on the condition that such shall not lessen competition. Owing to the very vague and fleeting way in which that requirement was worded, with no further guidance provided on what SEC should be looking out for, there was strong opinion that as far as competition issues were concerned, these were not really considered by SEC, but that the later always only focused on assessing merger transactions by reference to the fairness of a merger deal on the totality of the shareholders of the merging companies, which test or requirement though not expressly mentioned in the Act, was consistent with the traditional role of a securities regulator such as SEC.

In the light of all the above, this paper attempts a comparative analysis of the merger provisions of the new ISA vis-?-vis the 1999 Act that it replaces. At the beginning, the paper acknowledges that there has been ongoing debate as to what exactly has been achieved by the new Act. On one hand, a school exists with the forceful opinion that rather than contribute, the new Act has succeeded in creating problems and confusion in the sphere of merger control. This was a view championed by Dr. Gbolahan Elias in an academic paper on the subject However, another school exists promoted by Chief Anthony Idigbe (a member of the panel of experts whose recommendations resulted in the ISA 2007) with the equally persuasive opinion that rather than focus on any drafting problems visible in the Act, real attention should be on the real policy intent of the law reform; that said, that the Act has many strengths which if properly harnessed by the SEC, will contribute to the development of the Nigerian capital market in line with global trends and international best practices. Foreshadowed by those conflicting positions, in identifying and critiquing the innovations contained in the merger portions of the new Act, the central theme in which this paper is written is that in spite of whatever drafting concerns that exist in the Act, on balance the Act has the potential to contribute in a very substantial way to the development of the Nigerian capital market and economy. Thus, it argues that the SEC should rise to the occasion through the enactment of supplementary, harnessing, redeeming and clarificatory Rules and Regulations in order to unlock the hugely tremendous potentials within the merger provisions of the ISA 2007. Only by so doing will this country realise the very noble intents of the panel of experts who reviewed the old law and came up with the innovations that we must embrace for the good of our economy.

Structurally, section II of the paper presents the areas of divergence between the merger control provisions of the ISA 2007 and that of the 1999 Act. The style adopted is to compare the textual provisions in the two Acts identifying areas of difference, and then critically assessing the effectiveness of the new provisions in the light of what is identified as the policy goal or intent behind the provision by reference to the thinking of the panel of capital market experts whose recommendations were the basis of the ISA 2007. Where the policy intent appears defeated from the language of drafting employed, the paper would offer suggestion on a way out of the problem that ensures that the noble intent is not defeated. However, where a policy intent is considered to be problematic, misconceived or indeed overly ambitious, an opinion would be expressed in that regard.

Section III identifies and discusses the provisions of the two Acts where they converge, and as is adopted in respect of the preceding section, would consider whether the textual convergence meets with the intent of the reformers. Where the convergence exists but which contradicts an identified policy intent, a suggestion would be offered on a way by which the Commission could through its Rule-making powers meet with the policy intent of the reform irrespective of the textual provision of the Act. Section IV would then draw attention to certain controversial, though latent, issues which if ignored, could create some chaos should they confront the SEC when the Commission has not adverted its mind to them. This would be followed by Section V, the conclusion.

II. Areas of divergence

Scope of Application of Merger Control – Application to Partnerships

Unlike the 1999 Act, ISA 2007 contains a provision which extends the merger control jurisdiction to not only companies, but also to businesses organised in the form of partnerships. Specifically, section 118(2) ISA 2007 provides that: “The provisions of this part XII shall apply to partnerships.”

This particular innovation amongst others has rankled and bewildered many a participant in the capital market, and has drawn quite a lot of flak. In our respectful view, the criticism of the extension of merger control provisions to partnerships is misconceived and largely based on ignorance of the thinking that informed that inclusion, and of the practices in other jurisdiction. In fact, in so far as the criterion for merger control is the impact of a merger or business combination on the structure of market and of competition, the non-inclusion of merger control provisions to partnerships in the 1999 Act was a significant deficit and lacuna. Therefore, the extension brought in by section 118(2) ISA 2007 is a good thing and would enhance our merger practice and jurisprudence. One must understand that in so far as the main criterion is the impact on competition as is provided for under section 121 of the ISA 2007, then it is proper that it should extend to combinations or mergers of partnerships given that the world over, competition law (of which merger control is a component) applies to “business undertakings” irrespective of how they are legally organised. Even an ordinary individual could be the subject of competition law (antitrust) in so far as his or her activities impact the market in a capacity other than as a consumer. For example, section 2(1) of the Singaporean Competition Act defines an “undertaking” to which the Act applies as:

“Any person, being an individual, a body corporate, an unincorporated body of persons or any other entity, capable of carrying on commercial or economic activities relating to goods or services”.

As exemplified from the above definition, it should also be noted that competition law is wide and all-encompassing, covering undertakings (businesses) both in the real and in the service sector. Most partnerships such as law and accounting partnerships operate in the service sector. By extending the operation of merger control powers to partnerships, the ISA 2007 unlike that of 1999 ensures that mergers and acquisitions in the services sectors which are increasingly (as always) very crucial in a modern economy are not insulated from the operation of the competition law provisions in the Act to the detriment of the economy. Indeed, internationally, all the big law firms and professional services mergers such as that between Clifford Chance and Rogers & Wells (law firms) had to be reviewed and cleared by the competition authorities in the UK, EU and the US and other jurisdictions where they operate before they could go ahead.

Therefore, it would be very absurd if mergers of partnerships in the real and service sectors which meet up with the relevant turnover and assets criterion in the Act were not to be notified and reviewed by SEC while mergers between companies some of whose turnovers are far less than those of the service sector partnerships were not to be notified and considered by SEC, simply because they are partnerships; and this particularly when these partnerships operate in very important and strategic areas of the economy.

Scope of Application of Merger Control – Application to Mergers Consummated Pursuant to Authority of Federal Government Agencies

Section 118 (4) extends the operation of SEC’s merger control powers to mergers consummated pursuant to authority given by any Federal Government owned agencies; in addition, those mergers still need to be notified and approved by SEC before they could go ahead. This is in contrast to the ISA 1999 which provides in its section 99 (4) that “Nothing in this section shall apply to transactions duly consummated pursuant to the authority given by any Federal Government owned agency under any statutory provision vesting such power in the agency”. In effect, unlike the 1999 Act, approval of a merger or acquisition by a sectoral regulator does not oust SEC’s jurisdiction.

In an attempt to implement the provision of section 118 (4) ISA 2007, SEC has proposed a new draft Rule 228 which extends the scope of the application of the Act to:

“Any Merger, Takeover, Acquisition or Business Transaction undertaken by any Federal Government owned Agency pursuant to statutory powers vested in it”.

We note that the above does not reflect the intention of sections 117 and 118 ISA 2007. Unlike the 1999 Act situation, basically what this section 118(4) seeks to achieve is that even when a merger has been authorized by a sectoral regulator such as the Nigerian Communications Commission (i.e. merger of telecoms companies) or the Pension Commission (i.e. merger of pension fund administrators etc), such a transaction is still subject to SEC’s merger control powers under the ISA 2007 and must additionally be approved by SEC. By no means is the intention of section 118(4) of ISA 2007 to bring within the purview of SEC’s jurisdiction, the combination or merger of Federal Government owned agencies which are established by statute just as SEC is and thus can only merge by governmental statutory act. Therefore, to the extent that the text and impact of the draft Rule 228 is at variance with the text and intent of section 118(4) which it seeks to further, the draft Rule 228 is better redrafted as follows:

“Any Merger, Takeover, Acquisition or Business Transaction undertaken between and among companies, partnerships notwithstanding that such a transaction has received approval from any Federal Government owned agency under any statutory provisions vesting such power in the agency”.

On the merits of the change, one must note that internationally, there is no single formula for dealing with the relationship between a competition authority such as the SEC has been vested powers by the ISA 2007 and sector regulators. Some jurisdictions insist that as far as competition issues are concerned particularly in mergers, in addition to consideration and approval by regulators of that relevant sector who more often than not are merely concerned with the technical details and impact of the merger and less on the impact on competition, then the transaction still has to be notified and approved the competition authority. To that extent, we think that the innovation brought in by section 118 (4), while appearing quite burdensome to businesses who have to carry the extra stress of compliance, is actually justified and supported by the practice in other jurisdiction, viewed against the test of a greater benefit to the economy. This is particularly so when the sector regulator in question is not obliged by its enabling law to consider competition issues in its regulation of companies and businesses under its watch, but less so with respect to mergers between companies in a sector where the enabling law such as the NCC Act mandates the sector regulator to consider competition issues in its regulation of companies. On balance, however, we consider that the innovation of section 118(4) ISA 2007 is a good thing.

c. Categorisation of Mergers

The ISA 2007 unlike the 1999 Act has categorised mergers into 3 sub-classes determined in accordance with criteria based on market share thresholds, annual turnover, assets or combination of a number of factors, to be issued forth by SEC through regulations from time to time (essentially a size-of-transaction criterion). The categories are small, intermediate and large mergers. Essentially, small mergers need not be notified unless SEC orders parties to do so; intermediate and large mergers must be notified and approved by SEC. This categorisation of mergers into 3 types in ISA 2007 has its roots in the South African competition law, and first found its way into Nigeria in a revised version of the Federal Competition and Consumer Protection Bill.

In terms of jurisdictional thresholds for the application of merger control, the ISA provides that an application must be made to the SEC for a formal approval of any intermediate or large merger in Nigeria (see section 118 of the ISA 2007). The criteria of what is a small or intermediate or large merger are to be determined and published by SEC. Since the coming into force of the ISA in June 2007 no such criteria has been released. However, the ISA provides that pending the time SEC prescribes the substantive thresholds for the various categories of mergers, the lower threshold shall be =N=500,000,000 (Five Hundred Million Naira) while the upper threshold shall be =N=5,000,000,000 (Five Billion Naira). The implication of the above therefore is that every merger in which the size of the transaction is less than N500 Million Naira is a small merger and not ordinarily subject to notification and approval by SEC; where the size of the transaction is between 500M to N5 Billion, it is an intermediate merger and subject to SEC notification and approval; and where it is above N5 Billion, it is a large merger and also subject to SEC’s notification and approval (see generally section 120 of the ISA 2007).

We note that in the draft Rule 232(B) SEC has sought to bring the threshold of an intermediate merger down to N250 Million. We note the justification for reducing the statutory threshold from N500M to N250M. We are, however, concerned that this may impose additional burden on the Commission for the simple reason that many small companies would have to come under the scrutiny and regulatory power of the Commission. This might unduly overburden the Commission on small insignificant business combinations and affect its ability to focus, as it should rightly do, on larger transactions that may impact negatively on the market.

As in South Africa, parties to a small merger are not under an obligation to notify SEC of that merger unless the Commission requires them to do so. However, the Commission may require a company to notify it within six months of implementation of the small merger if the Commission is of the opinion that the merger may substantially lessen competition or cannot be justified on public interest grounds. In that case the parties will take no further steps with respect to implementation of the merger until the Commission’s decision in relation to the merger (see section 122(3),(4),(5) of the ISA 2007.

d. Third Party Input in the Merger Process

The ISA 2007 unlike the 1999 Act has opened the window for 3rd party input in a formal way to the merger process. With respect to an intermediate merger, besides notification of the Commission, there is scope for the involvement of relevant stakeholders in the merger process. The Act imposes a requirement in the case of intermediate mergers for the parties to provide a copy of the merger notice to any registered trade union that represents a substantial number of its employees; or the employees concerned or representatives of the employees concerned, if there are no such registered trade unions (see section 123 of the ISA 2007).

The law does not indicate if parties to a large merger should notify their respective trade unions or employees as in the case of an intermediate merger. Idigbe explains that this would appear to be an oversight on the part of the draftsmen. For if parties to an intermediate merger should notify their employees, it stands to reason that parties to a large merger should also notify. It follows that although not specifically stated, prudence dictates that parties to a large merger should notify their respective registered trade union, or employees’ representatives or concerned employees. This view is supported by Anthony Idigbe.

e. Reduction of Delays in the Merger Assessment Process

Also, ISA 2007 sought to curtail delays in the merger process by imposing time limits for the Commission to indicate its decision. For small and intermediate mergers SEC has only 20 days to make a decision and 40 days for large mergers (see sections 125 and 126 ISA 2007).

It is important to add that pursuant to section 127 of the Act, the Commission has the power to revoke its decision approving a merger where such approval was based on incorrect information by a party or the approval is obtained by deceit or the concerned company has breached the obligation attached to the decision.

Though no explicit time limits were imposed on the Commission under the 1999 Act, as the 2007 Act has done, in practice the Commission had always approved or taken decision on notified transactions where all the information needed has been provided by the parties as they should, and the parties have provided maximum cooperation to the Commission. Therefore, in imposing time limits the ISA 2007 might well have only legislated what already obtains in practice.

f. Power to Impose Structural Remedies

A fundamental provision which features in the ISA 2007 for the first time, and which must be particularly noted is the Commission’s power to order the break-up of a firm into separate entities where it forms the view that the business practice of a company will substantially restrain competition. This is in section 128 ISA 2007 which provides as follows:

“Where the Commission determines that the business practice of a company substantially prevents or lessens competition, the Commission may in the public interest order the break-up of the company into separate entities in such a way that its operations do not cause a substantial restraint of competition in its line of business or in the market”.


Before the break-up order, the affected company will be notified by the Commission and given opportunity to make representation to the Commission. Thereafter the Commission shall refer the break-up order to the court for sanction. To state the obvious, this is a far-reaching antitrust power. Incidentally, beyond stating the Commission’s power to order break-up of a company that it considers its business practices to be “substantially lessening competition”, and reference to court for sanction, the Act gives no further guide on the circumstances in which the business practices or what business practices would come to be considered as “substantially lessening competition.”


We note that the Commission’s draft Rule 234(c) seeks to implement the above section 128 of the ISA 2007 by providing that:

“Where the Commission suspects that a company constitutes a restraint to competition or creates a monopoly in a particular industry, the Commission shall order the break up of the company”.

A number of observations could be made regarding the above draft SEC Rule in the light of section 128 ISA 2007 which it seeks to implement. Firstly, the use of the word ‘suspects’ is quite different from the word “determines” which is provided under section 128 of ISA, and surely you cannot impose a fundamental far-reaching sanction such as structural divesture as contemplated by section 128 ISA simply on the basis of a mere suspicion. Accordingly, in the first place we recommend that “suspects” be changed to “determines”. Indeed, the word “determines” implies a process for determination, which will comply with the principles of fair hearing. Instead of saying: “company constitutes”, we recommend the inclusion of the word “business practice” after company to make it clear in line with section 128 ISA that the focus is on the business practice of the company, and not on the company itself.

Secondly, a provision such as section 128 sought to be implemented by New rule 234(C) is an antitrust power and is therefore very novel in this jurisdiction. Most business do not understand what business practices of theirs that could be considered to restrain competition due to ignorance of the rules. Therefore for the sake of transparency and to ensure that any measures of the Commission in enforcement of this provision are not struck down by the Courts on fair-hearing grounds, we recommend a definition of practices that could be considered as restraining competition and in respect of which measures could be taken. This would even enable the Commission to amplify its jurisdiction as a full antitrust / competition body and thus fill the gap in the Nigerian legal order of the absence of a competition law and a competition authority. Accordingly, we recommend the inclusion of a new provision to New Rule 234(C) as follows:

“The following shall be considered as business practices capable of restraining competition and creating a monopoly:

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: directly or indirectly fix purchase or selling prices or any other trading conditions;

limit or control production, markets, technical development, or investment;

share markets or sources of supply;

apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

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

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: directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers;

applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

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 such contracts.”

Thirdly, owing to the far-reaching nature of break-up powers which even authorities in advanced jurisdictions are reluctant to wield, we recommend that the Commission clarifies in the Rule that its power to order the break-up of a company is only an ultimate sanction, not an exclusive or exhaustive one and that in instances where anti-competitive business practices are established, the Commission reserves the right to impose administrative fines in line with its powers under the Act, as opposed to ordering the break-up of the company. We feel that this clarification and retention of the power to fine would encourage the Commission to enforce the provision of section 128 ISA and the New Rule 234(C) implementing the section, than it otherwise would if the only sanction available is break-up of a company, which understandably the Commission would be minded to exercise in extremely limited circumstances. We believe that carrying out our recommendations would ensure that the section and the Rule are not just decorative.

g. Transactions Caught (More Extensive Definition of a Merger)

Unlike the 1999 Act, the 2007 Act contains a more elaborate definition of what constitutes a merger for the purposes of the exercise of the Commission’s power under the law. Thus by section 119 of the Act, a transaction is a merger and therefore caught if it is an amalgamation of the undertakings or any part of the undertakings or interest of two or more companies or the undertakings or part of the undertakings of one or more companies and one or more bodies corporate. And the above may be achieved in any manner including (i) purchase or lease of the shares, interest or assets of the other company in question, or (ii) amalgamation or other combination with the other company in question. Also, “control” is achieved if (a) a person beneficially owns more than one half of the issued share capital of the firm; or (b) is entitled to cast a majority of the votes that may be cast at a general meeting of the firm or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person; or (c) is able to appoint or to veto the appointment of a majority of the directors of the firm; or (d) is a holding company, and the firm is a subsidiary of that company as contemplated under the Companies and Allied Matters Act; or (e) in the case of a company that is 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; or (f) has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in the preceding paragraphs. The most important aspect of the above and thus worthy of particular comment is that of section 119(3(a) on beneficial ownership or acquisition of shares. This provision enables the Commission’s merger powers to be extended to cover offshore or overseas transactions of two or more overseas companies where either of them control a Nigerian subsidiary.

h. Substantive Assessment of Mergers

Section 99(3) of the 1999 Act mandated SEC to consider a merger by reference to the substantive test of whether the merger “is not likely to cause a substantial restraint of competition or tend to create a monopoly in any line of business enterprise.” However, though this was the legal test under which mergers were considered under the Act, the reality was that in practice, in keeping with its traditional role as a securities regulator, SEC under the 1999 Act went beyond the impact of a merger on competition (an antitrust effect) to also consider whether the merger scheme treated all shareholders equally and fairly. This was good practice and showed that the Commission was conscious of its fundamental responsibility. The Commission also had regard to the public interest in assessing mergers, though this was not explicitly demanded of it under the 1999 Act.

The 2007 Act in its section 121 explicitly provides for three tests plus one (3 + 1) under which mergers are to be substantively assessed. These three (3) tests are both sequential and alternatives, namely: i) the test of ‘substantial lessening or prevention of competition’; ii) the test of “technological efficiency or pro-competitive gain greater than the harm to competition”; and iii) the test of justification ‘on substantial public interest grounds’. The latter would allow considerations such as the effect of the merger on employment, particular industrial sector, and the ability of national industries to compete in international markets. In determining whether a merger is likely to substantially prevent or lessen competition, SEC shall assess the strength of competition in the relevant market, and the probability that the company, in the market after the merger, will behave competitively or co-operatively, taking into account any factor that is relevant to competition in that market, including: the actual and potential level of import competition in the market; the ease of entry into the market, including tariff and regulatory barriers; the level and trends of concentration, and history of collusion, in the market; the degree of countervailing power in the market; the dynamic characteristics of the market, including growth, innovation, and product differentiation; the nature and extent of vertical integration in the market; whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail; and whether the merger will result in the removal of an effective competitor.


Independent of any of the above 3 tests, SEC is also mandated to also determine whether all the shareholders of the companies have been fairly, equitably and similarly treated.

III. Areas of convergence

a. Issue of “Approval in Principle” and “Formal Approval”

Both from the letters of section 100 ISA 1999, and the provisions of section 121(4) and 121(5) of the ISA 2007, there appears to be a convergence between the law under the ISA 1999 and the ISA 2007 in terms of requiring the Commission to authorise a merger transaction twice: first as an “Approval in Principle”; and the second as a Formal Approval. The Commission in a bid to implement the above provisions of section 121(4) and (5) of the ISA 2007 has proposed draft Rules 232(A) to 234 which more or less preserves the status quo in terms of maintaining a two approval process in a merger transaction. The same situation goes for requirement for two interfaces with the judiciary in a merger process where the provisions of the ISA 2007 mentioned above more or less reflect the old regime under section 100 of the ISA 1999 in contemplate a court ordered meeting in the first instance, and in the second instance final court sanction to a merger after the Commission has approved it.

On the issue of “approval in principle” and then followed later by a “formal approval”, it seems that these provisions derive from sections 121(4) ISA which contemplate a first “approval in principle” and section 121(5) ISA which contemplates a second formal “approval” by the Commission to a merger. However, the existence of procedures for these two distinct approvals gives rise to certain problems and conflicts when viewed in the light of the entirety of the sections of the ISA 2007 dealing with mergers. For example, section 125 for intermediate mergers provides that where SEC is notified, it has 20 working days within which to approve the merger or otherwise. The 20 days could be extended for a further period of 40 days after which the merger will be deemed approved if nothing is heard from SEC. Sections 122 (5) and 126 have similar provisions for notified small mergers and for large mergers.

It seems, therefore, that the provisions for approval in principle and main approval as provided in the proposed Rules, though founded on the express provisions of the sections of the ISA 2007 referred to may defeat the essence of sections 125, 126 and 122 (5) on the need for expeditious consideration of mergers, contrary to the philosophy that led to the reform of the ISA and produced the 2007 Act. For instance, when will the 20 days period start counting; is it when a company applies for the approval in principle or with respect to formal approval? It seems therefore that the maintenance of the status quo in the Act might have been in error by the draftsman and might not have been supported by the panel of experts who favoured a policy of an expeditious consideration of mergers and a reduction of the bureaucracy.

Having made the above observations, we are mindful of the concern of the Commission to have an initial preview of the merger before allowing parties to proceed with the transaction. Again, in practice some public companies may even require the Commission to indicate some form of endorsement of the proposed transaction before proceeding with an Extraordinary General Meeting (EGM) in view of the huge cost involved in convening such meetings. Indeed to make such an evaluation, the Commission will have to be presented with some form of documentation sufficient to enable the Commission request that the companies proceed with formal merger notifications and provide all the documentations listed in the Rules. These are consistent with the trend in other jurisdictions such as Europe with the European Commission and the UK with the Office of Fair Trading (OFT) where the practice supports a process of informal consultations between merging parties and the merger authorities even in advance of formal notifications of merger transactions. We believe that such a process of informal consultations between merging parties and SEC should be encouraged by the Commission. In practice, the documents that could be required to be previewed by the Commission at this informal pre-merger notification stage should simply be a draft of the Scheme document and/or an MOU and perhaps an explanation (Information Memorandum) of the position of the parties in the market. However, this process should just remain informal and be encouraged by SEC practice.

Though, as noted above, the idea of two approvals (“approval in principle” and “formal approval”) seem supported by the manner of drafting of section 121(4) and (5) of the ISA 2007, to capture the real intent of the law-makers and also to streamline and simplify the process, we recommend that while parties are encouraged to engage in informal consultations with the Commission (as done in other jurisdictions), with respect to formal notifications, the two distinct procedures for approvals as found in the draft Rules should be scrapped. In essence, parties should make only one notification to SEC for one approval, and should furnish all the documents that are required under that one single filing, with the Commission reserving the right to request for more documents and information, and time only beginning to run when all the relevant documents have been provided to the Commission.


In line with the above, we recommend a unification/harmonisation of the requirements/documentation in the draft Rule 232(A), 232(C) and New Rule 233. Thus, under the heading, “Requirements for Merger Notification”, all those documents listed in Rule 232(A), 232(C) and New Rule 233 should all be provided at once; everything coming under one heading. The rationale is for the Commission to consider all these documents at once, take a holistic view of the merger and decide whether it has approved the merger or not, and whether it approves subject to any conditions to be fulfilled by the parties. This would save the parties from the inconvenience and cumbersomeness of coming to the Commission twice or even thrice for approval; first for “Approval in principle”, then for clearance of Scheme Document, followed by Formal Approval. Under the process that we envision, if the Commission approves the merger, it shall inform the parties of this result upon which the parties can then apply to the Court for sanction of the merger. To aid the application process to the Court, a provision similar to the draft Rule 233(4) shall also be included in whatever section that is retained to read as follows:

“Where all the requirements have been fulfilled, the Commission shall in addition to the communication of its decision to the parties, inform the court, by a statement in writing whether the merger is approved, approved subject to conditions or prohibited”.

b. Issue of “Court-ordered Meeting”

In addition to the above, we understand that the real intention of the law-makers was the removal of court ordered meeting as a compulsory event for companies undergoing a merger, and to limit interface with the Court to only situations of final sanction of the merger already approved by the Commission. As Anthony Idigbe who was a member of the panel of experts on the reform of the ISA 1999 noted:1


“The real intention of the lawmaker was to eliminate court sanction for small and intermediate mergers. It was felt that SEC was adequately equipped to deal with those and the time has come for our courts not to be overburdened with small and intermediate mergers. However, for large mergers SEC is required to refer the notice to court and to indicate its approval or otherwise. This clearly means that the court sanctions large mergers. There is no need for a separate application to court for sanction as the reference is enough. The intention here is to reduce cost by avoiding the present double requirement for application to court; first for court ordered meeting and secondly for court sanction. In other words, ISA 2007 sought to streamline the process and make the merger procedure easier.”

Unfortunately, this policy intent did not manifest in the express letter of the law which in section 121(4), as noted above, still contemplated court-ordered meetings on one instance, and final court sanction on another instance for all mergers. However, even though the legal basis for continuation of court-ordered meetings appears to be Section 121(4) of ISA 2007, in our view, when construed alongside all provisions in ISA 2007 on mergers and acquisitions and the spirit of reform that drove the emergence of the new Act, including the language of the section 121(4) in question which uses the permissive/discretionary “may” and not the mandatory “shall”, then the requirement for court-ordered meeting constitutes only an exception to be used in very limited circumstances and not the rule that should apply in every case. Consequently, we recommend that every reference to court-ordered meeting should be discarded and should not form part of the Rules. What should be required is evidence of shareholders approval by way of EGM or AGM Resolution, Minutes of Meeting where Resolution was passed, copy of Newspaper advertisement of said meeting with a notice period of 21 days in line with the provisions of CAMA. As a matter of administrative practice, however, SEC may withhold approval to the merger transaction and request that the parties have a court-ordered and supervised meeting only in circumstances where there is no evidence of AGM or EGM or where the Commission is not satisfied with the shareholders approval placed before it or where issues have been raised as to the quality of meetings allegedly held to approve of mergers, thereby creating doubts in the Commission’s mind. In such limited circumstance, the Commission can request that the company have a court ordered meeting and may elect to have its representatives present at such meeting.

IV Some very important questions that must agitate our minds – what are the various colours of the rainbow?

There are some lingering confusions regarding certain aspects or provisions of the ISA 2007 merger control which of necessity we must reflect upon.

1) That Little Problem About Small Mergers

Firstly, when section 121(1)(a) of the ISA 2007 says that small mergers need not be notified by parties to SEC and the draft Rules (Rule 230) affirm this by providing that parties to a small merger shall not be obliged to notify the Commission of the transaction but shall only be bound to inform the Commission (presumably for statistics/record purposes) after the transaction is concluded, what exactly does this mean? It seems that there is some confusion here as this provision is not quite as simple as it seems. By not being obliged to notify, does it mean that two or three companies whose combined assets and turnover are “small” within the threshold definition of the ISA can just come together and without reference to any other institution, just pass their necessary resolutions and merge?

One possible position (a view held by some individuals interviewed) is that the answer to the above question must be in the affirmative, unless there is some intervening sectoral regulator who must still be notified and its approval sought. For example, if it is a “small” merger between two or three companies operating in the telecommunications or insurance arena, then notwithstanding the fact that there is no obligation to notify the SEC, the transaction must still be cleared by the sectoral regulator, and once the clearance is obtained, then the parties can implement their merger without reference to any other institution including the courts.

One main problem arising from our merger control system is that either by default or design, our ISA from the 1999 Act (together with the SEC Rules) was made a comprehensive and or exclusive legislation in relation to merger procedure, and it is important to note that this all-inclusiveness of the Nigerian merger provisions in one legislation was one major weakness highlighted by Dr Gbolahan Elias as noted at the beginning of this paper. The expression of this all-inclusiveness was the repeal or transposition into the ISA of those provisions originally in CAMA (Part XVII) detailing the procedure to be followed by companies in Nigeria undergoing a merger. An essential element of that procedure, as it should be, is the requirement for the court to sanction every merger (following SEC’s approval) and make essential consequential orders that would give life and effect to the merger, such as transfer of assets and continuation of pending proceedings by the surviving entity. Because under the ISA 1999 “every” merger must be notified to SEC triggering the operation of those procedural steps contained in the Act and Rules including court santion, the repeal and absorption of those CAMA provisions did not really create any problem. However, by excusing parties to small mergers from notifying the Commission of the transaction, that feeds the notion or confusion identified above that in that case, subject to clearance by any relevant sectoral regulator, the merger characterised as small is entirely an internal matter between the parties, insulated from ALL the procedural steps in the Rules for mergers, including the obtaining of court sanctions.

In our view, that position is not only onerous, it is also dangerous. We also doubt if the reformers of the ISA intended to excuse small mergers from ALL procedural steps, in particular, of obtaining court sanction. If the reformers intended this to be the case, then it is submitted most respectfully that that intent is a misconceived one. It is submitted that there is no way parties can just characterise their business combination as “small” and without reference to the court, complete and consummate the transaction internally between themselves. Such a notion is in fact a legal fallacy. Companies are legal creations; therefore any reconfiguration of the status of those entities can only be possible and effective upon the obtaining of judicial imprimatur. This is an existential fact. For example, when companies merge, some of the results include the fact that properties held previously in the name of the legacy entities would now be held in the name of the surviving entity without the need to go through the rigour and expense of transfer and title perfection at the Land Registry. The same also goes for suits pending against any of the legacy entities, which must now be taken over by the surviving entity. One does need a court sanction to be able to achieve the above.

In the light of the above, therefore, the second alternative answer to the question posed earlier about small mergers vis-a-vis court sanction is that even though parties to a small merger are not obliged to notify the SEC of the transaction, they must still apply to court to sanction the merger and cannot conclude the transaction internally between themselves. The power to sanction or otherwise, of mergers, is an inherent judicial power or jurisdiction of courts, which cannot be taken away, ignored or avoided by parties. Moreover, “small” merger parties should still study the merger procedural steps in the ISA/SEC Rules and follow those steps with necessary modification; that is, with the exception of any steps that require interface with the Commission.

Despite the view expressed above, it must be admitted that to a majority of potential merging parties whose merger would be “small”, the confusion on procedure and court sanction identified above presents a real dilemma. It is therefore strongly suspected that in a bid to obtain some certainty, parties to a small merger might be compelled to notify the Commission of the transaction anyway, so that they can then lay the foundation for obtaining court sanction. This possibility would seem to be supported by the manner of drafting section 122 of the ISA 2007 on small mergers which creates the impression that only when a small merger has been notified and approved by SEC would the parties then be able to apply for court sanction, by means of which or by subsequent order the court would then make provision for matters such as transfer of assets and liabilities etc. Specifically, a combined reading of: section 122 (2) (“a party to a small merger may voluntarily notify the Commission of the merger at any time”); section 122 (3) “within 6 months after a small merger has commenced implementation,. the Commission may require the parties to the merger to notify the Commission of the merger…); and then section 122 (6) “if the merger is approved by the Commission, the parties shall apply to the court for the merger to be sanctioned and when so sanctioned…). It should be noted that these provisions were more or less reflections of provisions of section 100 ISA 1999 and the later of former section 591 of CAMA which was within the Part XVII of CAMA that was repealed by section 263(1)(d) of the ISA 1999.

As stated, the present state of uncertainty in the law might motivate parties to notify all mergers to the Commission, whether small or otherwise. Should that happen, that would defeat the policy intent behind the law reform which was to lessen the workload of the Commission and also reduce the transactional burden on parties. In the light of this, it is recommended that SEC should by means of its Rules clarify the situation by modifying the text of the draft Rule 230 to indicate that:

“Subject to obtaining the requisite sanction of the court, parties to a small merger shall not be required to notify the Commission of the merger but shall inform the Commission after the conclusion of the transaction”.

The SEC should also by means of a guiding statement (not normative Rule) advise parties that notwithstanding the fact that they are not obliged to notify the Commission of small mergers, they should still comply with the general procedure on mergers in the Rules such as the use of merger scheme documents and obtaining of court sanctions. This clarification from the Commission would reduce the incentive for all parties to small mergers to be voluntarily notifying them to the Commission in disregard of the policy intendment behind section 122(1)(a) of the ISA 2007.


2) The Relationship Between the ISA 2007 and Other Legislations

The second issue, though of relevance to the issue of small mergers and court sanctions discussed above, relates to the precise relationship between the ISA 2007 and other legislations that might have an impact on capital market transactions. For the purposes of the topic (mergers), the most relevant is the CAMA. It would be noted, as already observed, that the ISA 1999 had repealed (see section 263(1)(d) ISA 1999) and then adapted the relevant sections (Part XVII, section 591 CAMA) dealing with mergers and takeovers. This included the important procedural requirement for parties to obtain judicial approval for their merger transactions, after sanction by the SEC.


An interesting dimension has been introduced (perhaps unwittingly) by the ISA 2007, and this raises the question of whether in fact the procedures for mergers contained in CAMA have not now been resurrected, and thus now operate in parallel with the merger procedure contained in ISA 2007 and the Rules. Support for the above assertion can be found from a dispassionate analysis of the relevant provisions of the ISA 2007 vis-a-vis ISA 1999. Section 312(1) ISA 2007 provides that:

“Notwithstanding the provisions of this Act the relevant provisions of all existing enactments, including the following:… (c) the Companies and Allied Matters Act… shall be read with such modification as to bring them into conformity with the provisions of this Act in relation to capital market matters.”

Section 312 (2) goes further to provide that: “Without prejudice to the generality of subsection (1) of this section, the provisions of this Act shall be in addition to the application of other laws not barred and not in derogation of the provisions of any other law or enactment for the time being in force”.

Then, subsection 3 provides:

“Apart from the Constitution of the Federal Republic of Nigeria, if the provisions of any other law, in relation to capital market matters including the enactments specified in subsection (1) of this section, are inconsistent with the provisions of this Act, the provisions of this Act shall prevail and the provisions of that other law shall, to the extent of the inconsistency, be void”.

Section 314 (1) of the ISA 2007 (on repeals and savings) provides that:

“The Investments and Securities Act No 45, 1999 is repealed”.

A critical analysis of the combined force of the above stated provisions, would lead to the conclusion, as stated above, that to the extent that there are CAMA provisions on mergers and takeovers on a matter over, which the ISA 2007 is silent, or even if not silent, which provisions did not contradict any provision of the ISA 2007, such CAMA provisions by necessary implication still apply to the merger transaction, and shall supply whatever omissions of the legislature. Therefore, even if the ISA 2007 is silent on the question whether parties to a small merger must still obtain court sanction notwithstanding absence of a legal obligation to notify to SEC, by dint of the fact that by the CAMA every merger must be sanctioned by court, then small mergers must receive judicial approval before they can be consummated.

The above result in our view finds particular support from a combination of section 312 (1) and (2) the ISA 2007. The basic issue here is that since the ISA 2007 repealed the ISA 1999 but without saving the provision of the ISA 1999 (section 263(1)(c) which repealed Part XVII of CAMA which contained merger procedure, has the procedure for mergers under CAMA’s original section 591 not been resurrected? That provision obliges every merger to be notified to the Commission without distinction, and must after such notification and approval by the Commission, be sanctioned by the court. That provision also makes provision for approval in principle and final approval and also of court-ordered meetings and court sanction.

The only thing to note is that if the resurrection argument is valid, such resurrection shall operate subject to the position that any of the provisions in CAMA’s Part XVII shall be read subject to ISA 2007 and must defer to the later ISA in the event of any conflict by virtue of section 312(3) ISA 2007.

3) That Little Issue About Section 118(3) of the ISA 2007

The third and final issue relates to the meaning and implication, in terms of the obligation to notify qualifying mergers, of the provision of section 118(3) of the ISA 2007. This provision, which was also in the 1999 Act provides as follows:

“Nothing in this section shall apply to holding companies acquiring shares solely for the purpose of investment and not using same by voting or otherwise to cause or attempt to cause a substantial restraint of competition or tend to create a monopoly in any line of business enterprise.”

There has been no judicial or administrative interpretation of this provision. What we have is just a replication of it in Rule 230 of the current SEC Rules (on Exemptions). There are two possible sides to interpreting the meaning and implication of the above provision. The first scenario is that the provision establishes a regime of self-assessment whereby merging parties themselves can review their transaction and even though ordinarily the acquisition is such that would restrain competition by virtue of size of transaction (i.e notification threshold is met), however if the acquirer takes the view that it is just making the acquisition for investment purposes and not for the purposes of exercise of corporate political authority, then it is not obliged to notify the SEC of the transaction.

The second interpretation, excluding conclusive self-assessment, is that where the thresholds for notification are met, notification must be made to the Commission, and it is for the Commission itself to take into account the purpose for which an acquisition is made (such as for investment purposes and not for voting purposes) in reaching a decision whether to authorise the transaction or not. In our view, the second interpretation is a safer one and accords more with good sense, taking into account the realities of our country. If a window is given to parties by which they would assess a transaction on their own and exercise a liberty whether to notify or not, they would most likely abuse that liberty by failing to notify potentially harmful transactions on the guise that the essence of the acquisition is just for investment purposes and not for voting, and much less not for exercise of monopoly power.

V. Conclusion

As made clear at the beginning, this paper has sought to examine in a comparative sense the provisions of the ISA 1999 and 2007, identifying areas of divergence and convergence. Where necessary, the paper has also pointed out where the texts of the legislations depart from the policy intent of the law reform. It is hoped that the SEC would utilize its Rule making powers to iron out the areas of the Act where the creases abound, and that by so doing, the overall purpose of the reform which is the creation of a capital market and merger control capability in tune with the modern times shall be realized.

1 See supra note 3.

By Nnamdi Dimgba