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Planning
Considerations
[back]
There are so many
issues for consideration that the team of Managers, Management
consultants, auditors, accountants and attorneys would have to apply
their expertise to, and these may include:
· Consultation,
investigation and negotiation of contracts and favorable positions.
· Employee benefits
employment and labor contracts and other management and staff benefit.
· Compliance to the
laws, pertinent administrative rules, regulations and listing
requirements.
· Management and
legal changes to the structure of the corporation.
· Due diligence and
disclosure issues regarding property.
· Resolving
conflict of interest issues since management owes to the shareholders a
fiduciary duty.
· Resolving
positively the question; is the seller authorized to sell and the buyer
to buy under their respective articles of incorporation?
Mergers [back]
Advantages:
· There is a fairly
wide choice in form of consideration.
· Procedures are
relatively simple.
· Large numbers of
conveyance are avoided because are made by operation of law.
· No minority stock
interest remains.
· Certificate of
incorporation can be amended as part of the transaction.
Disadvantages:
· Acquiring corporation
assumes all of seller’s liabilities –fixed, contingent, known or unknown.
· Corporate
representations and warranties do not survive the closing.
· Shareholders of
seller and buyer may dissent and exercise appraisal rights.
· Shareholders of
the seller and the buyer must meet and vote in favor of a merger.
· Selling
corporation loses its identity
Asset
Acquisition [back]
Advantages:
· Legal limitations
on merger and consolidation can be avoided
· Buyer’s directors
ordinarily may approve purchase without shareholder vote (unless shares
listed)
· Shareholders may
not have appraisal rights.
· There is greater
control over assumed liabilities than in mergers.
Disadvantages:
· Procedures are
relatively complex because every conveyance must be separately made.
· De facto merger
doctrine may be invoked
· State and local
transfer taxes might be payable
· Disruption of
customers and suppliers is more likely than in mergers
· Transaction may
give rise to “bulk sales” law problems.
· It may be
necessary to secure consents to transfers and assignments that could have
been avoided in merger.
Stock
Acquisition [back]
Advantages:
· Procedures are
simple if selling shareholder group is small.
· Asset transfers
and need for consents are avoided.
· Appraisal rights
do not arise
· Transaction may
be in the form of takeover bid without consent of seller’s management.
· Insurance and
unemployment ratings may be maintained
· Transactions
might be consummated faster than merger or sale of assets.
Disadvantages:
· Asset transfers
will not be avoided if corporation acquired by purchase of stock is
liquidated into its new parent
· Unknown and
contingent liabilities are assumed
· Sellers of
control may be deemed to owe fiduciary duty to minority and offer may have
to be extended by purchaser to minority shareholders.
· Transaction is
likely to require registration with SEC.
· Minority
interests might remain outstanding unless all shareholders sell their
stock to the purchaser
Legal
Issues to be addressed [back]
The very first to
be dealt with would be the legal provision for the regulation. It goes
without saying that the CBN has the legal oversight authority to dole out
regulations for the Banking Sector in Nigeria. Some commentators have
ventured that the guidelines, while necessary, are unduly
overreaching.[9] It is our view that the law permits the CBN Governor to
issue the said guidelines, and he is right to do so. While in the normal
course of events, companies have re-positioned for the synergy created by
bigger corporate entities, the CBN Governor has boldly ventured to
challenge the Nigerian Banking system to compete in a global system. N25
Billion may sound like a lot of money (and it is a lot of money) in
Nigeria, but if compared to the International competitors these banks
intend to do business with; it does not amount to much. Why should the
CBN Governor care? Because that is part of the Governor’s job to reposition
the industry to be able to compete for funds and investment from serious
International players.
Banks operate only
as corporate legal persons incorporated under the Companies and Allied
Matters Act 1990(CAMA) in addition to any other ancillary law depending
on their area of concentration. Mergers and Acquisition of companies in
Nigeria is governed by Sections 590 through section 920.of the Companies
and Allied Matters Act. Practically speaking, there are Negotiated
acquisitions and Hostile takeovers. Here, we shall deal mainly with
Friendly Negotiated Acquisitions, as indeed that was the import of the
guidelines from the CBN.
The special case of
Nigerian merger is that the process is backed and fully guided by
statute. To the extent that any scheme, proposal for a compromise,
arrangement or reconstruction between two or more companies, the court
may on the application in summary way of any of the companies to be
affected, order separate meetings of the companies to be summoned in such
a manner as the court may direct.[10]
Successor
Liability [back]
However, in all
situations, whether statutory or through asset acquisition, the issue of
successor liability might come up. In the United States for instance, the
courts have approached the issue of successor liability from the common
law perspective through statutory legislation. The common law position is
that the purchasing corporation assumes the sellers liability when 1) it
expressly agrees to assume them; 2) the asset sale amounts to a de facto
merger; 3) the purchaser is a mere continuation of the seller; 4) the
sale is for the fraudulent purpose of escaping liability for the seller’s
obligations E.g., Ruiz v. Blentech Corporation (7th Cir. 1996).[11]
California law for instance contemplates the kind of situation banks may
find themselves in when they merge regarding successor liability. The
California product line exception provides that a company that procures a
business and continues in the same line of business assumes strict
liability in tort for defects in unit of the same product line previously
manufactured by the acquired company. Ray v. Alad Corp (Cal 1977).[12]
Note that there are some states in the USA like Michigan that has relaxed
this continuity exception. which requires that the selling firm owners
take stock in the purchasing firm.
The Nigerian position as codified in Section 591(5) of the Companies and
Allied Matters Act 1990 seems to be in line with the common law position
as reflected above.
Steps to or
Formalities for Mergers
From a legal
perspective, the following business steps are taken in every classic
merger situation
Preliminary
agreement between the lawfully authorized Management team
Issuance of a Press Release detailing the fact of the merger proposal
within a time frame (this, to forestall the leak of information or
insider trading)
Boards of Directors of both the Target and Acquiring Company in
Resolution adopt the Merger Agreement
Both or all Companies notify their shareholders of Merger Proposals for
approval by majority vote in compliance with their respective Articles of
association.
In the event of a public quoted companies, notification would have to
include Proxy Statements which would detail:
1. Terms of merger
2. Consideration to
be offered (cash, stock or a mixture)
3. Information
about the companies involved
4. Upon approval,
shareholders receive an exchange of stocks for pre-approved consideration
5. Shareholders who
opt out of the merger agreement can demand to be bought out at “fair
value”.
After approval by
the Shareholders by themselves or through voting by proxy, the Articles
of merger filed at the Corporate Affairs Commission with a stated effective
date.
On the effective
date, the surviving Company takes over in law all the assets and
liabilities of the Target Corporation including those that are unknown,
undisclosed or unforeseen.[13]
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