A Takeover is a form of corporate restructuring in Nigeria. It occurs when one business gains control of another by acquiring a substantial portion or all of its shares or assets. This can be through an amicable arrangement or a hostile acquisition, where the target company’s management may oppose the transaction.
As a form of business combination, takeovers involve the transfer or amalgamation of assets, shares, or other interests, including those held by non-shareholding entities. In Nigeria, takeovers are governed by the Investments and Securities Act 2007 (ISA), the Companies and Allied Matters Act (CAMA) 2020, the Securities and Exchange Commission (SEC) Rules 2013 issued under the ISA, and the Nigerian Stock Exchange (NSE) Rule Book 2015, which applies to publicly listed companies.
Together, these regulations ensure compliance and the protection of stakeholders’ interests. Below is a comprehensive guide on how to navigate the process of taking over a company in Nigeria.
Overview of Takeover of Company in Nigeria
As mentioned above, a takeover occurs when a company purchases enough shares to influence or assume control of the target company’s management and operations. Typically, this process involves an offer made by the acquiring company to the shareholders of the target company, with compensation offered in cash, securities, or a combination of both.
This offer, known as a takeover bid, aims to transfer control of the target company to the acquirer. Takeovers can be consensual, with the agreement of both companies, or hostile, where the acquiring company gradually and secretly accumulates shares without the target company’s approval. In corporate finance, takeovers may result in the acquired company becoming a subsidiary, or the two entities may merge into a single new company, consolidating their operations.
Under Section 131 (1) of the Investments and Securities Act (ISA) 2007 and the SEC Rules, a takeover occurs when a person, group of persons, or corporate body acquires at least 30% of the shares in a public quoted company with the intent to gain control.
The law mandates that such a takeover bid must be made through a registered capital market operator/agent to the shareholders of the target company. A bid is an “invitation” or an “offer” that expresses an intention to acquire shares from a shareholder. If a corporate company makes the bid, then it must provide a resolution from its board of directors, signed by at least one director and the company secretary, approving the takeover bid.
Procedure for Takeover in Nigeria
When a takeover is proposed, the Securities and Exchange Commission must review and approve the application, as required by Section 118 of the ISA. Regardless of any prior agreements, SEC approval is mandatory. If the offeror is a corporate body, a board meeting must be held to consider and approve the takeover bid for acquiring the target company (the offeree).
If approved, the board’s resolution which is signed by at least one director and the company secretary, must accompany the bid, in compliance with Rule 445 of the SEC Rules. A takeover formally begins with the submission of a takeover bid, which constitutes an offer. The bid is considered dated on the day it is dispatched, or, if dispatched on multiple days, the latest dispatch date applies.
A takeover bid can be made by an individual or group, either directly or through an agent, and similarly, a company can initiate a bid on its own or through an agent. The individuals or entities initiating a takeover bid must submit a copy of the proposed bid to the Securities and Exchange Commission for registration before its dispatch.
Stages of Takeover Applications and Documents to be Submitted
Applications for the processing of a takeover must be submitted to the Commission by the financial advisers representing the offeror, in duplicate. These financial advisers must be capital market operators duly registered with the Commission.
Takeover applications are processed in three stages namely; the application for authority to proceed, the filing of the proposed takeover bid, and the filing of the result of the takeover bid.
Application for Authority to Proceed
Before initiating a takeover bid, the offeror must apply for Authority to Proceed with the Takeover, accompanied by the following documents:
- Two Copies of the Information Memorandum;
- A Letter of “No Objection” from the Relevant Sector Regulator;
- Extracts of Shareholders and Board Resolutions of the Offeror Approving the Takeover;
- Copy of the Certificate of Incorporation of the Offeror certified by the Company Secretary;
- Copy of the Memorandum and Articles of Association of the Offeror certified by the Corporate Affairs Commission;
- Copy of Letter(s) from the Offeror Appointing the Financial Adviser(s) to the Transaction;
- Audited Accounts of the Offeror for the Preceding Five Years;
- Evidence of Payment of Filing Fee.
The authority to proceed with a takeover bid is made in writing and valid for three (3) months from the date it is granted. However, its validity may be extended if an application for extension is submitted to the SEC at least fourteen (14) days before the original expiration. Upon approval, the authority will be extended for an additional three (3) months.
The Filing of the Proposed Takeover Bid
Upon receiving approval to proceed with a Takeover Bid, The bid proposal must be submitted to the Commission for registration, which will be approved if it meets the requirements outlined in the Act. The following documents must be filed with the Commission:
- Two (2) draft copies of the takeover bid;
- Consent letters of directors and other parties to the transaction;
- Certified copy of the CAC form containing particulars of directors of the offeror;
- A copy of the draft Financial Services Agreement between the financial adviser and the offeror, and any other agreement(s) entered into in the course of the transaction;
- Annual report and accounts of the offeror for the preceding period of five (5) years or the number of years the company has been in existence;
- Evidence of payment of SEC application fees based on the value of shares to be taken over;
- Draft notice of the Takeover Bid to be published by the offeror in at least two national daily newspapers;
- Evidence of source of funds;
- Certificate of capital importation (where applicable).
The Filing of the Result of the Takeover Bid
After successful registration, the takeover bid must be sent to each director and shareholder of the target company, and the Commission. The target company will then convene a meeting to evaluate the bid, requiring at least 90% acceptance of the shares being acquired.
Within one month of the bid’s acceptance, the offeror must notify dissenting shareholders, who can choose to either be paid the same amount as consenting shareholders or request a valuation of their shares. Dissenting shareholders must respond within 20 days; otherwise, they will be considered to have accepted payment like the others. The offeror is responsible for paying the amount owed to the dissenting shareholders to the target company as a trustee.
Once the bid closes, the offeror must submit the results to the Commission within seven (7) working days of the offer’s conclusion, providing details on the following:
- A summary of the target company’s shareholders who accepted the offer containing the volume and value of the respective shares
- Acceptance Forms;
- Full list of Acceptances;
- Rejected Acceptances;
- Draft Newspaper Announcement;
- Evidence of settlement of purchase consideration;
- Evidence of payment of the processing fee.
To determine whether to approve a takeover bid, the SEC will evaluate the effect of the successful bid on Nigeria’s economy and also the implications for the staff of the target company. Once the takeover bid has been duly approved and successfully registered, the SEC will conduct a post-takeover inspection at least three (3) months after the bid’s registration.
Conclusion
The primary goal of a takeover is to acquire a significant share in a target company. This enables the acquiring company to exert control and potentially make the target a subsidiary. This process often arises when the target company experiences financial difficulties, and the acquirer steps in to rescue and merge the struggling entity into its operations.
In Nigeria, takeovers continue to serve as a vital tool for corporate restructuring and business expansion in Nigeria. From the above, we have discussed the procedure and requirements involved in this corporate restructuring process. If you have further questions or inquiries, please reach out to our team of Corporate restructuring lawyers at Resolution Law Firm, we will be happy to hear from you.
By LAWCARE NIGERIA
Telephone: 08179000888
Email: lawcarenigeria@gmail.com
