The corporate world of Ghana is changing and market watchers have predicted an increase in mergers and acquisitions (M&A) in Ghana. This is as a result of continuous growth in the economy, increased interest from international markets and the desire of domestic companies to expand their operations across Ghana’s borders. Experts in the industry say that as Ghana’s economy continues to expand and mature, more and more domestic institutions should develop aspirations or potential to expand their reach beyond Ghana’s borders and M&A will be key for securing a broader geographic footprint.
Ghana has attracted the attention of well-known international businesses investing in all sectors of the economy. Examples of M&A in various sectors that illustrate this growing interest include the recent acquisitions of Provident Life and Express Life by Old Mutual and Prudential respectively in the insurance industry, the acquisition of Benso Oil Palm Plantation by Wilmar Group in the agriculture sector and the acquisition of Fan Milk International by Abraaj. The banking industry has also experienced several M&A transactions. There are two main reasons for this in the banking sector. Firstly the recapitalization requirement of the Bank of Ghana (BOG) and secondly interest from international banks seeking to acquire existing banks.
The growing size and depth of Ghana’s economy is creating more opportunities for M&As. If these opportunities are taken, expect corporate takeovers and mergers to become increasingly common, and the structure of corporate Ghana to keep changing. What then should foreign investors bear in mind?
Foreign Ownership/ Shareholding Restrictions
Generally under Ghana's investment laws where an investor intends to undertake a joint venture with a local person, the foreigner has to invest foreign capital of at least $200,000 in cash or capital goods relevant to the investment or a combination of both by way of equity participation, and the local person must have at least 10 % equity participation in the joint enterprise. In the case of a wholly foreign owned company the investor must invest a minimum of $500,000 in cash or capital goods relevant to the investment or a combination of both. Additionally, a foreigner engaged in trading activities must invest at least $1m in cash or goods and services relevant to the investments.
Mergers & Acquisitions
A company seeking to do business in Ghana may acquire an equity stake in an existing company (“Investee Company”), but they still need to comply with the minimum capitalization requirements. Where the industry or sector in which an Investee Company operates is regulated, the approval of the Regulator may be required. Additionally, the approval of the Securities and Exchange Commission (SEC) is required where an Investee Company is listed on the Ghana Stock Exchange (GSE). An acquisition of 30% or more of the shares of a listed company or its holding company trigger a mandatory takeover offer and is regulated by the SEC.
Other Regulatory Restrictions
A number of sector specific laws restrict the level of foreign ownership in companies engaged in business in those specific sectors.
- Banking Sector - The Bank of Ghana (BOG) has to approve any agreement or arrangement that would result in a change in the control of a bank or its holding company. Consequently the sale, disposal or transfer of 10% or more of the capital or voting rights of the business of a bank (Significant Interest), an amalgamation or merger of a bank with another bank or institution or restructuring of the bank requires the approval of BOG.
- Petroleum Sector - The Petroleum (Exploration and Production) Law provides for notification to the sector minister where a merger or acquisition would result in the creation of a new company. A petroleum agreement cannot be assigned without the consent of the sector minister. The consent of the Minister is also required for the transfer of control of at least 5% of the shares in a petroleum company. If the merger or acquisition leads to the company ceasing operations, the Ghana National Petroleum Corporation (GNPC) has the first option in the purchase of its assets.
- Mining Sector - The acquisition of a stake in a mining company which vests in a person (alone or with an associate(s) ) control of more than 20% of the voting power at any general meeting of a mining company/its holding company needs the approval of the minister responsible for mines. The Mining Act is being reviewed to tighten regulations in areas of revenue, licensing and protection of the environment.
- Fisheries Sector - Fishing crafts operating in Ghana's coastal waters and rivers in connection with any fishing activity have to procure a license for their activities. These licenses are not transferable to another person without the permission of the Fisheries Commission. Consequently, where a merger or an acquisition leads to the formation of a new company, a license granted to a fishing vessel owned by the old company cannot be transferred to the new company unless this permission has been obtained. Nationality restrictions are also likely to affect an M&A transaction in this sector. For example, the owner of a local industrial or semi industrial fishing vessel licensed under the Fisheries Act must employ a master, officers and crew of whom no less than 75% are Ghanaians.
- Telecommunication - The Electronic Communications Act 2008 states that the National Communications Authority (NCA) must approve the transfer of shares in a licensee company if the transfer would result in a change of control of that company and cause it to breach licence terms relating to its ownership structure.
- Insurance - In the insurance sector, the acquisition or sale of a Significant Interest in an insurance company also requires the prior written approval of the National Insurance Commission.
Choice of Structure
The choice of structure to be adopted for M&A transactions largely depends on the nature of the acquisition, tax implications and regulatory requirements.
The Companies Act 1963 (Act 179) (as amended) expressly provides for arrangements and amalgamations. An arrangement is any change in the rights or liabilities of members, debenture holders or creditors of a company or any class or in the Regulations of a company, other than a change effected under any of the provisions of the Act or by the unanimous agreement of all the parties affected. An amalgamation is defined as any merger of the undertakings or part thereof or part of the undertakings of one or more companies and one or more bodies corporate. This is the most common kind of merger, which basically means that one company is absorbed into the other one.
There are a number of ways for businesses to merge in Ghana:
- Merger of two or more companies into one of the existing companies
- Merger of two or more companies into a new entity set up for that purpose (Special Purpose Vehicle)
- Amalgamation or arrangement with court approval
The merger can take the form of acquisition by one party of the business and assets of the other party in return for a cash payment or an issue of shares or an acquisition by one party of the shares of the company being acquired in return for a cash payment or an issue of shares.
(a) Asset Acquisition
This typically allows an investor to acquire some or all of the assets of the vendor company but the vendor retains the ownership of the corporate entity. With such transactions the vendor’s business name may or may not be included in the sale, and the licenses, contracts and employees may or may not be transferred to the investor depending on the terms agreed. Investors are likely to opt for an asset sale enabling the investor to agree on the assets to acquire and exclude certain liabilities as well as reduce the level of tax payment especially in relation to stamp duties and investment taxes. It is important to note that the shareholders of the corporate entity may have the same rights after the merger. Formalities associated with such a transaction include the registration of the acquired assets (where applicable) and procurement/transfer of the relevant licences into the name of the purchaser.
(b) Share Acquisition
Here the purchaser acquires all the shares in the company that owns the assets and the business. (This was the case for the acquisition by Total Outré-Mer S.A.’s takeover of Mobil Oil Ghana Limited). By acquiring the shares, the purchaser indirectly obtains ownership of all assets of the company. With a share acquisition, the business is transferred as a going concern (subject to change of control provisions in relevant contracts). It tends to be a more straightforward transaction. Only shares are transferred as opposed to all of the underlying assets of the business (for which separate transfers with different formalities may be required). The necessary legal formalities would have to be adhered to (e.g. completion and filing of the relevant statutory forms with the relevant statutory authorities) to ensure the effective transfer of the shares, and parties must comply with any restrictions on transfer of shares under the Companies Act and the Regulations.
(c) Joint Venture Arrangement
An investor can also structure the transaction as a joint venture with the establishment of a separate corporate vehicle which the parties (two companies) will own together pursuant to a formal joint venture or shareholders agreement. Investors may opt for this structure considering the costs and risk sharing as well as other factors such as local content requirements for some sectors which may dictate a minimum level of local ownership and capitalization matters.
Minority Squeeze Out
The Companies Act and securities laws of Ghana make provision for the acquisition of a minority shareholding if the acquirer obtains at least 90% of the value of the voting shares of the company being acquired within 4 months of making the offer. The person acquiring must offer the remaining shareholders consideration equal to the prevailing market price of the voting shares or the price offered to the other holders, whichever is higher, within 2 months of achieving the 90%. This happened in the HFC Bank takeover. Republic Bank pointed out that Ghana's securities laws demand that once an institutional investor's equity stake in a company listed on the GSE reaches 40%, then it must offer to buy out all the shareholders who own the other 60%.
Restrictions on price (cash or shares)
Ghanaian law does not provide for any restrictions on the form of consideration to be paid for the shares in a private company. In respect of public companies, other requirements affect the consideration that is provided.
This will depend on the nature of the transaction and the option adopted by the parties, the conclusion of any member/creditor and labour concerns. Generally, a merger process may take up to 120 days to complete. The period is usually longer in respect of regulated sectors where prior approval is required from the regulator. In respect of public companies, the offer must be open for acceptances for a period of 30 days.
Labour & Employment issues
Under Ghana's labour laws, where the restructuring/ reorganization of a company will result in redundancies, the target company has to inform the Chief Labour Officer (CLO) and any trade union concerned with a minimum of 3 months’ notice. Furthermore, where a merger or acquisition will result in an employee suffering any diminution in their terms and conditions of employment, the employer must make redundancy payments to the workers. If the investor takes on the employees of the company, new employment contracts must be provided, with consent of the relevant employees.
Ghanaian law treats a gain from the realization of an asset (including the disposal of shares) as investment income, attracting the payment of the relevant tax. However, any Double Taxation Treaty (DTT) with the home country of the investor may be applicable to the transaction. Ghana currently has DTTs with the UK, France, Germany, Netherlands, Belgium, Switzerland and South Africa.
M&A is akin to the concept of marriage. It offers vast opportunity for growth and success but it does not always blossom. Just as some marriages are unsuccessful, so are M&A’s though the benefits outweigh the challenges. M&A is here to stay so long as businesses continue to seek growth. It is believed that the positive press about Ghana in recent times highlighting its open market has spurred growth and sustained foreign investment. As the structure of corporate Ghana continues to grow and keep changing, it is important for businesses to consolidate and become big. This way companies are able to withstand the shocks that come with the industry and are able to offer more to their clientele and reduce country specific risks.