Merger and Acquisition; An Innovative Approach Towards Sustainable Competitive Advantage

Being a paper presented by Sunday Abdul Esq, at the Corporate and Commercial Law Summit organized by the Legal Ideas Forum International.

To understand the concept of mergers and acquisitions, it is apposite and instructive to have an understanding of one of the basic principles that underlines company law practice. The foundation of company law practice and corporation is rooted in the idea of corporate personality of a registered business organization.

By definition, a company is a business organization formed by a group of people, with rights and liabilities that are distinct from that of the individual members. The primary aim of forming a company is to make profit.

Upon registration, the company becomes an artificial person that can sue and be sued, acquire and own properties, buy shares and also pay taxes. Being artificial person, a registered corporation is most often divorced from the personality of its members except in instances where the veil of incorporation is lifted. See the case of Salomon v. Salomon. Section 42 of the Companies and Allied Matters Act 2020 (CAMA).

The power to acquire and own properties conferred on companies also includes the capacity to acquire shares in another company and also to completely be over another company and all of its assets.


  • Meaning of Mergers and Acquisitions

The terms mergers and acquisitions are often times used interchangeably but they may not always mean the same thing. Section 92(a) of the Federal Competition and Consumer Protection Act 2018 provides the statutory meaning of mergers and acquisitions in Nigeria.

Mergers: The Act states that mergers occur when one or more undertakings directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking.

Mergers can also be defined as the combination of two or more organisations into one large organisation or simply the fusion of two or more companies.

Acquisition on the other hand is an outright purchase of one company by another.


  • Types of Mergers

Mergers and acquisitions are grouped into various types and this is often determined by the purpose(s) for which companies merge; or one company acquires another. The following are some of the types of mergers and acquisitions:

1. Vertical Merger
Vertical merger is the type of merger that is done to combine two companies that provide similar or common goods and services. The companies involved may not necessarily need to be in direct competition with each other. It creates synergies and makes the companies run more efficiently.

For instance, logistics reasons between two companies that are not in direct competition with each other can merge. For example a textile firm can merge with a firm that supplies raw materials used for making textiles. This would make more supplies of raw materials available to the textile firm while the raw materials firm will always have a ready market that absolves its products.

Also a car manufacturing company can merge with a major car spare parts dealer. While the car manufacturer will have more control over the price of spare parts, the spare parts dealer will have more access to spare parts.

2. Horizontal Merger
This type of merger often happens between competitors who are in same line of business. A perfect example will be where two different banks merge to form one bank as was the case with Platinum Bank Plc and Habib Bank Plc which merged to form the now extinct Platinum Habib Bank (Bank PHB).

3. Conglomerate Merger
Conglomerate merger takes place between organizations that have totally unrelated business. It usually comes in two forms:

a) Pure conglomerate merger: This takes place where the organizations involved have no common goods or services at all.
b) Mixed conglomerate merger: In this instance, the organizations involved may have certain small number of similar products.
An example of conglomerate merger would be when Disney bought and merged with Pixar. Pixar was a graphics group before it was purchased in 2006 by Disney and is now a part of the animation subsidiary of Disney.

4. Market Extension Merger
This occurs where two companies involved in similar business but operating in two different markets merge. For instance if a restaurant operating in South Africa merges with another Restaurant in Nigeria in order to gain access into the Nigerian market.

5. Product Extension Merger
This is where companies that deal in same or similar products in the same market merge in order to share expertise, technology or designs.


  • Mergers and Acquisitions in Nigeria

The concept of mergers and acquisitions is not new to corporate law practice in Nigeria. Prior to the establishment of the Securities and Exchanges Commission (SEC) in 1982, mergers and acquisition had been taking place in Nigeria.

An instance was when three companies- Bendel Company Limited, Bendel Intra City Bus Service and Trans Kalife Ltd- merged to form the then Bendel Transport Transport Service Limited.

The period from 1982 however marked a watershed in the history of mergers and acquisitions in Nigeria upon the Establishment of SEC. The Commission became saddled with the responsibility of regulating mergers and acquisitions in Nigeria.

Between 1982 and 1998, SEC supervised about 13 mergers and acquisitions. One of such was the merger between Lever Brothers Nigeria Limited and Lipton Nigeria Limited.

Mergers and acquisitions have continued to thrive in Nigeria. In the oil and gas sector, in 2002, Agip Petroleum merged with Unipetrol to form what is now known as Oando PLC. Elf petroleum also merged with Total in 2001 among other such instances.

The banking sector has witnessed some of the most prominent instances of mergers and acquisitions in Nigeria. In 2004, the Central Bank of Nigeria (CBN) under the leadership of Prof. Chukwuma Soludo came up with a policy that mandated banks to increase their minimum capital base from Two Billion Naira to Twenty Five Billion Naira.

This policy alone reduced the number of banks in Nigeria from 89 in 2004 to about 24 in 2005. Some banks merged with others while some had their shares and assets completely bought over by healthier banks.

Standard Trust Bank merged with United Bank for Africa Plc, Platinum Bank and Habib Bank Merged to for Platinum Habib Bank (Bank PHB) which is now Keystone Bank Plc. Intercontinental Bank was acquired by Access Bank and due to the mismanagement of Oceanic Bank, the bank was acquired by Eco Bank Plc.


  • The Legal Framework for Mergers and Acquisitions in Nigeria

Prior to 2018, mergers and acquisitions in Nigeria were generally regulated by the Investment and Securities Act (ISA) 2007. The ISA was administered by SEC. Sections 117-128 of ISA generally regulated the processes of mergers and acquisitions in Nigeria.

However, with the promulgation of the Federal Competition and Consumer Protection Act (FCCPA) 2018, the Investment and Securities Act 2007 no longer regulates mergers and acquisitions in Nigeria. The FCCPA 2018 now regulates mergers and acquisitions in Nigeria.

The Act established the Federal Competition and Consumer Protection Commission which took over the functions of overseeing mergers and acquisitions from SEC. Section 165 of the FCCPA 2018 repealed sections 117-128 of ISA 2007 which had hitherto provided the general legal regulatory framework from mergers and acquisitions in Nigeria.

Asides the FCCPA 2018 which now regulates mergers and acquisitions, sector-specific legislations also form the body of laws that regulate mergers and acquisitions in Nigeria. For instance, for mergers and acquisitions to take place in the banking sector, the provisions of the Banks and Other Financial Institutions Act must also apply. In the oil gas sector also, the Petroleum Industry Act will also apply alongside the FCCPA.

The Companies and Allied Matters Act 2020 also apply generally to the process of mergers and acquisitions.


  • Creating a Competitive Edge through Mergers and Acquisitions

To understand how mergers and acquisitions create a competitive advantage, the various purposes for which corporations go into mergers and acquisitions must be taken into account.

One of the purposes of mergers and acquisitions is to balance the economic scale of companies. Mergers and acquisitions reduce manpower by reducing duplicate units of the organizations that merge and this in turn lowers the cost of operations and production which creates a competitive advantage for the merging entities.

Mergers and acquisitions can also lead to increased revenue for the merging companies which have become an entity, give corporations better access to wider markets through market extension merger, create better synergy and productivity between corporations.

It also improve the processes and technologies used in the production processes through product extension merger as two or more companies merge their technologies and ideas and thereby create a hybrid that gives the new entity a competitive advantage over other companies in same line of endeavour.


Mergers and acquisitions have become an integral part of corporate law practice globally. It has been recognized as an innovative way to save an ailing company from total collapse and also to secure the interests of shareholders.

Globally, mergers and acquisitions take place annually which amounts into billions of Dollars. Merging companies are given boost which in turn increases their chances of competing favourably with other companies in the same line of business.


About the Author
Sunday Abdul Esq, is an avid reader, prolific writer, and a legal practitioner with special interest in Corporate and Commercial Law.

Leave a Reply

Your email address will not be published. Required fields are marked *