CHAPTER ONE

GENERAL INTRODUCTION

1.1. Background of the Study

The study examines the Legal Framework for Mergers and Acquisitions in Nigerian Banking Industry and how Mergers and Acquisition affect the performance of the Banking Industry in Nigeria. It also seeks to ascertain the improvements which ISA 2007 has made on the old law contained in part XI, ISA 1999 (now repealed).

Mergers and Acquisitions are the latest solution to save the lives of banks, companies, and other industries that are collapsing in recent years. The year 2005 witnessed the reduction of 89 banks to 25 as a result of the re-capitalization policy of the Central Bank of Nigeria (CBN) from N2 billion to N25 billion in Nigeria. Also, many companies, banks, and business ventures have collapsed leaving those who invested in such ventures suffering. In the 1980s when the Co-operative and Commerce Bank (Nigeria) Ltd booming with golden advertisement on televisions and radios suddenly collapsed, many customers lost their deposits in that bank. Suddenly, Savannah Bank followed and other banks such as the All States Trust Bank, City Express Bank, ACB, International Bank, and Hallmark Bank. In the light of this, the failed Bank Tribunal was set up and some workers of such banks were tried and jailed, but this did not solve the problem of business collapse and banks liquidation.

The Central Bank of Nigeria (CBN) sort for solutions to alleviate the sufferings of the customers, shareholders, debenture holders and creditors, etc. thus the idea to re-organise the banks. In achieving this, the banks in the country resorted to mergers, acquisitions, take-overs, compromise, and amalgamation in their restructuring. The Federal Government of Nigeria was advised to undertake a consolidation programme that will result in mergers and acquisitions among banks in the country, strengthen them and put an end to the frequent collapse of banks in Nigeria. It is better to have few banks and other companies with reliable safety standards than numerous banks whose safety standards cannot be guaranteed. With recapitalization and consolidation in banks and insurance industries, it gradually extended to other sectors of the economy like the airline industry operators. The relevant laws were transferred to the Investment and Securities Act (ISA) 2007 No. 29 to have them in one body of legislation. Mergers and acquisitions, will involve preliminary steps, verification of corporate structure, verification of titles to assets, Banking/Financial taxation matters, Intellectual property, rights permits, and authorization, miscellaneous and deliverables. Also the ways of petitioning to the court for mergers and acquisitions by both 1st and 2nd petitioners became obvious and will be considered in this study.

1.2. Statement of the Problem

The incidence of mergers involving banks and companies has been on a gradual increase in recent times. The reasons for this include global economic recession, gross mismanagement of some banks and other companies; many harsh and stringent government policies, such as the regulatory fiat of the Central Bank of Nigeria and the National Insurance Commission forcing banks and insurance companies respectively to meet new minimum share capital requirements, the force of globalisation and the breaking of barrier to trade and movement of international capital.

In a bid to overcome the spate of the banks and financial institutions collapsing, which is as a result of mismanagement, global recession, harsh and stringent government policies like the CBN regulation policies, mergers and acquisitions have become the recent remedy for the banking and other financial institutions. Good as the proponent of mergers and acquisitions maintain, the effects on human and material resources on the mergering and acquiring banks have become manifest in the sharing of assets and liabilities of the mergering and acquiring banks, on the shareholders, share revaluation, organisational problems and employee problems.

1.3. Research Questions

This study will address the following research questions:

1. Can the effects of mergers and acquisitions with regards to human and material resources, assets and liabilities sharing and shareholders justify its use for the banking sector in Nigeria?

2. Can the impacts of strategic mergers and acquisitions transform ailing banks from middle players to mega banks in Nigeria?

3. Are the roles of the financial institutions regulators proactive to banking failures and contributes to solving the problems in the sector?

1.4. Objectives of the Study

The main objective of this study is to examine the legal framework for mergers and acquisitions in Nigeria banking industry. Specifically, the study will evaluate the effects of mergers and acquisitions with regards to human and material resources, asset and liabilities sharing and shareholders as to justify its use for the banking sectors in Nigeria. It will ascertain the impact of mergers and acquisitions in the banks and other companies in other to know whether the banking system competes and transforms from middle player to mega players since the introduction of mergers and acquisitions in Nigeria banking industry, and finally, examine the roles of the financial institutions regulators to proactively stem banking failures and contributes to solving the problems in the sector.

1.5. Methodology

The study adopts the descriptive, analytical and comparative study designs. The presentation of the comparison of Nigeria Banks with International Banks, and the discussion of mergers and acquisitions in other jurisdictions such as Ghana, China, Israel and India. These countries were selected randomly for comparison. The study relied essentially on primary and secondary source materials. Primary source materials are interviews and case law; while secondary source materials relied on include journal articles, textbooks, magazines, newspapers, conference papers and relevant internet materials.

1.6. Scope of Study

This research is rooted in a study of legal framework for mergers and acquisitions in

Nigerian banking industry. The work examines concept of banks and other companies in Nigeria and also some foreign banks and other companies that were used as comparison in other jurisdictions. Among the banks and other companies visited was include the Central Bank of Nigeria (CBN), United Bank for African, First Bank Plc, Diamond Bank, National Insurance Company, Bendel Line Company Limited, Total Nigeria Plc, Investments and Securities Tribunal Nigeria, MTN Company Limited.

It is however limited to banks and other companies who witnessed merger and acquisitions and both the managers, workers, shareholders, debenture holders were interviewed. Some contributions were made by others who suffered during the liquidation of some banks and other companies.

1.7. Literature Review

Mergers and acquisitions are among the business combinations in Nigeria that set out to solve the problems of banks and companies collapse. Although there are other business combinations such as take-overs, compromise, amalgamation, arrangement,5 reconstruction and consolidation. Mergers and acquisitions is however preferred to other methods of saving an ailing banks or companies because it appear to be the fastest method of solving the problems of banks and other companies collapse in Nigeria. The Central Bank of Nigeria started looking for solutions to alleviate the sufferings of customers, shareholders, debenture holders, creditors, etc. The then Central Bank Governor, Professor Chukwuma Charles Soludo came up with the idea of re-organisation of Banks. In achieving this, the banks in the country used all the methods of Mergers, Acquisitions, Take-Overs, Compromise and Amalgamation.

In no particular order, an understanding of these various could be stated thus:

Arrangement is simply a scheme under which rights of a company‟s shareholders or creditors (or any class of them) is altered. It is defined in Section 537 of Company and Allied Matters Act 2004 (CAMA) as:

Any change in the rights or liabilities of members, debenture holders or creditors of a company or any class of them or in the regulation of a company, other than a change effected under any other provision of this Act or by the unarming agreement of all parties affected thereby.

An arrangement often forms part of a reconstruction or merger. Reconstruction unlike

“arrangement,” is not defined in the CAMA 2004 or ISA 2007. Reconstruction of a company occurs when a company transfers its business and assets to a new company formed for that purpose in consideration of the issue of the shares of the new company to the members of the old company. If the debentures of the old company have not been paid off, then shares or debentures of the new company are issued to debenture holders of the old company to satisfy their claims. The result is that substantially the same business is carried on by the new company as the old, and substantially the same persons hold interest in the new company as did in the old company. Since the old company no longer has any business of its own, it is into liquidation.

Take-over means the acquisition by one company of sufficient shares in another company to give the acquiring company control over that one company. While Take-over bid means a bid made for the purpose of a take-over as provided in Section 132 of this Act.

Compromise,13 on the other hand is described as an agreement terminating between parties as to the rights of one or more of them or modifying the undoubted rights of a party which has difficulty in enforcing.