The Securities and Exchange Commission (SEC) has restated its determination to ensure that every shareholder is fairly, equitably and similarly treated and given sufficient information regarding transactions in the capital market. Acting Director General of SEC, Ms. Mary Uduk stated this while delivering a keynote address at the 1st Annual Seminar of the Committee on Mergers, Acquisitions and Reorganizations of the Nigerian Bar Association – Section on Business Law held in Lagos, Thursday.
Uduk disclosed that over the last three years, the Commission has approved approximately 120 merger related transactions, translating to an average of 40 merger related transactions every year adding that as can be expected with business dealings, the nature and structure of these transactions vary in line with the objectives of the transacting entities and operational sectors.
She said “We have had mergers by amalgamation, acquisition of assets only, acquisition of economic rights, MBOs, carve-outs, spinoff s and split-off s amongst others and most of you have been actively involved in a number of these transactions. “The ISA categorizes these transactions into small, intermediate and large mergers and gives the Commission the latitude to review the specified thresholds which the Commission has done to ensure that review and regulation is targeted at transactions with significant economic impact”.
The Acting DG disclosed that the primary challenge with respect to merger related transactions is the determination of what transaction is notifiable. “We have had some law firms question the Commission’s authority to review a merger involving private companies while some others have proceeded to consummate a transaction without first obtaining the approval of the Commission.
From the regulator’s perspective, a lack of understanding of the essence of regulation is our primary challenge. “Our regulation is two-fold, first as a securities regulator, we have a duty to ensure that every shareholder is fairly, equitably and similarly treated and given sufficient information regarding the transaction.
We apply this when reviewing transactions involving public companies. Secondly, we have a duty to determine whether the proposed transaction is likely to substantially prevent or lessen competition by considering the factors set out in Section 121 of the ISA.
This duty applies to both private and public companies. The Acting DG said the duty to make a determination on the competitive effects of a transaction is equally fraught with its own challenges on the SEC as its engagement with competition regulators of other jurisdictions reveals the need to be able to conduct an assessment of relevant markets and have access to real time data of economic sectors.
This she stated is hard to come by and as a result the Commission is compelled to rely on the information provided by Financial Advisers which is naturally skewed to present a favorable report on the market share of their clients.
She stated further that the next major challenge is the law itself as there was a lot of incomplete copying and a combination of old provisions with new ones which created a disconnection between the intent and spirit of the law with the literal interpretation. For instance she said, “the definition of “merger” in the ISA was copied from CAMA with continuing parts copied from the South African Competition Law.
This has resulted into having explanatory subsections for a missing definition section which has been very challenging. Section 131 of the ISA is yet another, and perhaps a more popular example of this sort of incomplete adoption of provisions.
“The debate as to when a bid should be made given the way the law is currently drafted and considering the global practice on takeovers, has been an ongoing one. While some argue that applying the law as drafted defeats the essence of making a bid, others favour applying the law as currently drafted. We expect the challenges with the law to be a thing of the past in no distant future, either with the passing of the proposed amendments to the ISA or the President’s assent to the Competition Bill; whichever comes first”.
