Topic: Taxation of Mergers and Acquisitions

The price of crude oil had fallen from over US$100 per barrel in the past few years to under US$40 per barrel recently in the international market. This has resulted in squeezed margins despite efforts to cut costs.

Krude Explora Nigeria Limited, an indigenous oil servicing company operating in the oil and gas sector for 23 years, faces a going concern risk due to falling profitability and liquidity challenges. It is probable that the company will default on its loan facility of US$122.5 million from B2B Energy Bank Plc. If this happens, the company will likely be taken over by Asset Management Corporation of Nigeria (AMCON).

Coincidentally, Wakanda Oil Exploration Limited, a multinational oil servicing company operating across Africa and the Middle East, has just sent an offer to acquire Krude Explora Nigeria Limited. The proposed acquisition will solve the liquidity problems in the short term, while efficiency and scale from the acquisition will hopefully return the company to profitability.

As the lead tax advisor for the proposed transaction, you are required to:

a. Explain the term “acquisition” as compared to a “merger” and give one example each of a recent merger and acquisition in the Nigerian petroleum industry. (4 Marks)

b. Outline and explain briefly the areas that may have tax implications for:
i. Krude Explora Nigeria Limited (4 Marks)
ii. Wakanda Oil Exploration Limited (4 Marks)

c. Discuss the likely impact of the African Continental Free Trade Area agreement and the local economy on a proposed acquisition or merger. (7 Marks)