Merger, the amalgamation of two or more companies into a new entity or the absorption of existing entities, is a significant facet of corporate restructuring. In Nigeria, mergers are essential tools, particularly for companies grappling with financial difficulties. The regulation of mergers in Nigeria has evolved over the years, with the Investment and Securities Act of 2007 setting the initial threshold based on asset values.
However, the game changed with the Federal Competition and Consumer Protection Act of 2018, which, through FCCPA Notice of Threshold for Merger Notifications 2019, reshaped the landscape. In this article, we delve into the dynamic world of merger thresholds in Nigeria and the need for precise categorization.
The Evolution of Merger Regulation in Nigeria
In the past, the regulation of mergers in Nigeria was governed by the Investment and Securities Act of 2007. Under this legislation, mergers were categorized into small, intermediate, and large, depending on the combined assets of the merging entities. Thresholds were defined as follows: mergers with a combined asset value below one billion Naira were considered small; those ranging from one to five billion Naira were intermediate, and mergers exceeding five billion Naira were classified as large.
The Turning Point: FCCPA 2018
In 2019, the Federal Competition and Consumer Protection Act 2018 (FCCPA) was enacted, ushering in a new era of merger regulation in Nigeria. President Muhammadu Buhari’s signature on this legislation brought with it a new framework for mergers. Section 92(4) and 95 of the FCCPA redefined the categories for mergers, now distinguishing only between small and large mergers. While this simplified approach may seem straightforward, it introduced an element of ambiguity – the establishment of specific thresholds was left to the discretion of the Federal Competition and Consumer Protection Commission (FCCPC).
The Federal Competition and Consumer Protection Commission (FCCPC) introduced the FCCPA Notice of Threshold for Merger Notifications in 2019, aiming to clarify the landscape of merger thresholds. However, while the notice stipulated that companies, both domestic and foreign, must notify the commission of mergers, it failed to provide definitive thresholds for distinguishing small and large mergers.
The Financial thresholds stipulated in the FCCPA Notice of Threshold for Merger Notifications require notification when the combined annual turnover of the merging companies in, into, or from Nigeria equals or exceeds one billion Naira, or when the turnover of the target company in, into, or from Nigeria equals or exceeds five hundred million Naira. However, this notification does not address the critical issue of defining the new threshold for small and large mergers, leaving the matter open to interpretation.
The Call for Clarity
In light of the FCCPA’s introduction of small and large mergers without specific thresholds, it is imperative that the regulatory body, the Federal Competition and Consumer Protection Commission, takes a decisive stance on this matter. The lack of defined thresholds creates uncertainty and ambiguity, making it challenging for businesses and legal practitioners to navigate the merger landscape.
For students, especially those in law school, when faced with questions about merger thresholds, it is advisable to respond as follows: “The appropriate procedure will depend on the category of merger contemplated, i.e., small or large merger. Since there is no specification on the category or threshold, there is no uniform procedure.” This response acknowledges the current state of flux in merger regulation in Nigeria and emphasizes the need for regulatory clarity.
Merger regulation in Nigeria has undergone a significant transformation in recent years, moving from a complex system based on asset values to a simpler categorization of small and large mergers. However, the absence of clear thresholds for these categories has created uncertainty within the business and legal communities.
The Federal Competition and Consumer Protection Commission must act promptly to establish precise thresholds, providing the much-needed clarity that will guide businesses, practitioners, and students in navigating the ever-evolving landscape of merger regulation in Nigeria. Until such clarity is provided, the waters of merger thresholds in Nigeria will remain murky, and stakeholders must adapt to this ambiguity to ensure compliance with the law.
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