The Merger Where the Controlling Shareholder Voted Twice
Delta Cement Plc, a public company with 1.2 billion shares, agreed to acquire Rivers Quarry Ltd, a private company, by a scheme of merger. Under the scheme, Rivers shareholders would receive three Delta shares for every ten Rivers shares. Chief Bello owns 22% of Delta and 40% of Rivers. He attended both shareholder meetings and voted in favour. The Delta meeting was attended by shareholders holding 61% of Delta's shares; 78% of those voting (including Bello) approved the scheme. The Rivers meeting was attended by holders of 85% of Rivers shares; 90% approved. A Delta minority shareholder, holding 1%, says the scheme is invalid because Bello's dual interest was not disclosed, the approval threshold was not met, and the court should not sanction a merger that dilutes Delta shareholders. Delta had also not obtained SEC approval before the court hearing.
1. Advise on the statutory procedure for a merger or scheme of arrangement in Nigeria and whether the approvals obtained are sufficient.
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CAMA 2020 permits a merger by scheme of arrangement. The procedure normally requires: a scheme document and explanatory statement; court-ordered meetings of the relevant classes; approval by a majority in number representing at least 75% in value of the members present and voting; court sanction; and, for a public company, SEC approval. On the figures, the Delta meeting was attended by 61% of shares and 78% of those voting approved. That meets the 75% in value test if the votes were validly cast. The Rivers meeting also met the threshold (90% of 85%). So the bare numerical argument that the threshold was not met is weak.
The real issues are disclosure and fairness. Chief Bello's dual interest should have been disclosed in the scheme document and to the court. The court will ask whether the meetings were properly constituted, whether the minorities were fairly represented, and whether the scheme is a proper arrangement. The absence of SEC approval before the court hearing is a procedural defect that should be cured before sanction.
2. What is the role of the court and SEC, and what factors will the court consider in deciding whether to sanction the scheme?
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The court's role is not to rubber-stamp the scheme. It convenes the meetings, approves the explanatory statement, and at the sanction stage considers whether the statutory procedure was followed, whether the classes were correctly constituted, whether there was full and fair disclosure, whether the scheme is proposed in good faith, and whether it is fair and reasonable to the members. The court also considers the interests of creditors.
SEC approval is required because Delta is a public company; the SEC reviews the scheme for investor protection and takeover rules. Bello's dual interest is a factor going to fairness: if he controlled both sides, the court may require independent shareholder approval or exclude his votes from the fairness assessment. The court may still sanction the scheme if satisfied that the price is fair and the minorities were not oppressed, but it can adjourn for disclosure or refuse sanction.
3. What remedies does the 1% shareholder have?
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The 1% shareholder should write to the board and the SEC demanding full disclosure of Bello's interest and an independent valuation of Rivers. He can appear at the court hearing through counsel and oppose sanction, relying on material non-disclosure and unfairness. He can also seek an injunction to restrain the meetings or the filing of the court application until SEC approval and proper disclosure are obtained. If the scheme is sanctioned, he may challenge it by appeal.
A petition for unfair prejudice may be possible if the merger is used to dilute or oppress the minority, but the primary remedy is to oppose the scheme. He should also check whether the takeover code gives him a right to a mandatory offer or a dissenters' appraisal right. The practical strategy is to force disclosure and an independent fairness opinion, not merely to count votes.