Need to Comply With Post-merger Requirements
By Jerome Ushakang
The apex regulator of the capital market in Nigeria, the Securities and Exchange Commi-ssion (SEC) has in recent times mounted an enlightenment campaign aimed at sensitizing investors on post-merger requirements, regulatory imperatives, acquisitions, takeovers or management buyouts.
This is timely, because of the upsurge in merger activities in the wake of new recapitalisation policy and guidelines by the Central bank of Nigeria (CBN) for banks.
More and more companies, especially in the banking subsector are turning their attention towards merger as the only option to beat the CBN dateline of December 2005.
There is therefore the need to study, to know and to assimilate the post merger requirements in order not to walk like a sheep to the slaughter. The investors, Employees, Industrialists and anyone involved in the production process who wants to know his or her rights have ample opportunity to do so. As the saying goes; "ignorance is not an excuse in law.
Some companies delegated only the company secretary or public relations manager to the workshop. Whereas the personnel manager and other management staff need to be abreast with what is going on about mergers to enhance strategic planning and appropriate decision making.
In the process of mergers, the Commissions Supervi-sory functions begins after all financial advisers, auditors, reporting accountants, solicitors, stockbrokers (where necessary have almost completed their own part of the job.
This is done through negotiations, valuation and due diligence. the information on the merging company gathered by the various parties and coordinated by the financial advisers during the negotiation stage is finally presented to the SEC in a package known as "Scheme Document".
Scheme Document
According to an Assistant Director, head of business combinations Division, Mary y. Uduk, Scheme document is a disclosive document or a sales manual that contains important information the public and most importantly, the shareholders of the merging companies should know about each company.
Information disclosed in this document would form the basis upon which shareholders of these companies will support the scheme of merger, or not.
usually, after three months of effective date (date of sanction by the court) the Securities and Exchange Commission *SEC) Undertakes a post-merger inspection of the resultant company. The post-merger requirements and review process are drived from the information supplied in the Scheme document by the merging companies.
Objectives of post Merger inspection
This is meant to enable the Commission find out whether the issues raised in the scheme document which formed the basis of the Commission's approval and sanctioned by the court have been complied with. And to ensure that the scheme was implemented as approved without alteration.
post Merger Requirements
The post-merger position of a company starts after the court sanction and the necessary post-merger documents have been duly filed with the Commission in accordance with S 100 (6) of the Investment and Securities Act (ISA).
The following items are contained in the document.
a) a copy of the court-order sanctioning the scheme within seven days for registration.
b) A copy of the order shall be published in at least one national newspaper.
c) A copy of the order to be published in the gazette.
d) also file the following; a statement of the actual cost of the scheme. a notification of the completion of the exercise within three months.
e) A summary report on the scheme in respect of the following; arrangement relating to the employees of the acquired company. Set-tlement of shareholders of the acquired company or companies; utilization of monies injected into the company (where applicable.)
In order to carry out the inspection, the following documents are examined:
Board Minutes Book
This is the time merger companies hold series of meetings before they resolve to merge copies of the resolutions are usually filled with the Commission as one of the underlying documents that accompanies a merger application.
Therefore, to ensure that the resolutions submitted to the Commission are genuine and that the meetings where the resolutions were extracted indeed held/'took place, the board minutes book are inspected and copies made.
Certificate of Incorpo-ration
When companies merge or one acquires the other, the scheme document must state whether there will be a name change by the resultant company of whether the name of one of the merging companies will subsist.
Where the merger or acquisition results in a name change, the original copy or the new certificate of incorporation must be inspected and a copy presented to the commission for record.
If a new company emerge from the merger, it is expected that it will be incorporated. Therefore, all the incorporation documents including the certificate of incorporation and the memorandum and Articles of Association will be examined, and copies submitted to the Commission.
Memorandum and Articles of Association
In order to make assurance doubly sure, the memorandum and Articles or Association is also checked to ensure that changes arising from the merger are recorded. any increase in share capital is also reflected in Corporate Affairs commission (CAC) form.
Assets and Liabilities
The merging companies are expected to have been maintaining good accounting records of their companies' transactions that show the state of affairs, including ledger account, fixed asset register.
Therefore, after the merger, the commission will inspect the consolidated fixed asset record, title documents to some assets including physical verification of significant or major items such as buildings, plant and machineries among others.
Plans for employees of the Acquired Company
The new company may absorb all or substantially the employees of the dissolved company. If any employee either voluntarily or involuntarily does not continue in the employment of the enlarged company after the merger he or she will be entitled to cessation of employment benefits. In regulating mergers, acquisitions, takeovers or management buyouts, the primary concern of the Commission is the success of the scheme.
This can only be achieved through stability of the enlarged company. It is only in an atmosphere of stability that the company would realise the objectives of the merger, acquisition, takeover or buyout, progress would be hindered where there is strife and intrigues as it can only bring down the worth of the company.
That is why the commission seeks to ensure that the welfare of employees of acquired or dissolved companies are taken care of. The severance benefits of terminated employees should be settled promptly. This will avoid unnecessary lawsuits which would be a distraction for the new company's board; management, surviving employees, suppliers, customers and other stakeholder.
the employee's welfare should be one of the important issues during negotiations. Management should think of the severance benefit in the form of gratuity, pension, salary arrears and other severance package.
As soon as the scheme becomes effective gratuity becomes payable whether the employee is within a pensionable age or not. Salaries owed must be paid, because it has been earned.
if the company can afford it, it should pay more than what is required by the employment contract term. Such an act sends positive signals to the surviving employees and encourages them to put in their best.
But if employees are made to leave in anger, having put in the best part of their lives, it would affect negatively the motivation of the the present crop and other stakeholders. They may no longer be committed to the company. They will begin to exhibit poor morale, less commitment and commit fraud and generally compromising their position including engaging in unethical conduct.
Some companies when they merge, staff struggle to be in the list of those being laid off, because of the good package prepared for those to be laid off. Merging companies should therefore provide good incentives to their would be former employees to enable them start a new life elsewhere.
The Assistant Director and Head of Business combination division at the Securities and Exchange Commission (SEC) Mary. J. Uduk disclosed that she once inspected a resultant company after a merger and was informed by the head of Administration that a total of 213 staff of both companies were given notice of retirement as a result of the merger.
he stated that though the retirement policy was 55 years, special concession was given to those who had attained the age of 52 years and above to apply for voluntary retirement in order to enjoy the special severance package offered.
Uduk said that in another company, 207 applications for early retirement was received, management rejected 16, base on the following reasons; good performance over the years, another reason was age, some were very young and could still contribute positively to the merged entity.
it is therefore important to treat would be former staff with utmost care and love, so that they would leave your employment with found memories and not hate and bitterness.
To this end, the commission calls for a comprehensive list of staff of the merging companies, contracts and terms of employment and after the merger, the consolidated staff list with the new organigram to confirm the reorganised position and ensure that their severance benefits have been paid.
|
