MERGER AND ACQUISITION AS A GROWTH STRATEGY
IN BUSINESS ORGANIZATION
BY
UKANDU ALOZIE RICHARD
PG/MBA/10/54776
DEPARTMENT OF MANAGEMENT
FACCULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
SEPTEMBER, 2011
1
MERGER AND ACQUISITION AS A GROWTH STRATEGY
IN BUSINESS ORGANIZATION
BY
UKANDU ALOZIE RICHARD
PG/MBA/10/54776
BEING A PROJECT SUBMITTED TO THE DEPARTMENT OF MANAGEMENT,
UNIVERSITY OF NIGERIA, ENUGU CAMPUS, IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF MASTER OF BUSINESS
ADMINISTRATION (MBA) DEGREE IN MANAGEMENT.
PROJECT SUPERVISOR:
PROFESSOR UJF EWURUM
SEPTEMBER, 2011
2
CERTIFICATION
I, UKANDU ALOZIE RICHARD, a Post Graduate Student in the Department of Management,
Faculty of Business Administration, University of Nigeria, Enugu Campus with Registration
number PG/MBA/10/54776 have satisfactorily completed the requirement for the Course and
Research work for the Award of Master of Business Administration in Management. This
Project Report is an embodiment of Original work and has not been submitted in part or full for
any other Diploma or Degree of this or any other University.
……………………………
UKANDU ALOZIE RICHARD
………….....................
DATE
Researcher
3
APPROVAL PAGE
This Project Titled “Merger and Acquisition as a Growth Strategy in Business Organization”
written by UKANDU ALOZIE RICHARD, with Registration Number PG/MBA/10/54776 has
been Certified and Approved as meeting the standard required in partial fulfillment for the
Award of Master Degree in Business Administration (MBA) of University of Nigeria.
……………………………..
Prof. UJF Ewurum
……………………………..
Date
Supervisor
..............................................
Dr. C.A. Ezigbo
………………………………
Date
Head of Department
……………………………..
External Examiner
………………………………
Date
4
DEDICATION
This work is dedicated to God Almighty the fountain of all knowledge for his Grace upon me,
to Uchenna Frank Ukandu (Uche 207), and also to Men of goodwill.
5
ACKNOWLEDGEMENTS
First and foremost, my profound gratitude to the Almighty God, maker of Heaven and
Earth, who created the unique opportunity for me to attain this level. I wish to acknowledge my
very distinguished supervisor, Prof. UJF. Ewurum for his constructive criticism in going
through the work. I appreciate you sir. I sincerely acknowledge the priceless support of my
Family, EIder B.I. Ukandu’s family, you are all wonderful people. May the good Lord continue
to bless you all.
I also want to appreciate the staff and management of the various organizations I
consulted in the course of this work. May God bless them. Worthy to mention are my good
friends and brothers, Ajufo Augustine, Okpara Alison I, De Law, Debby among others. Finally,
to Chukwu Cynthia .O .(Soul 2 Soul) for her time in typing setting this work. I wish you the
best in life.
6
ABSTRACT
This research takes a look at the adoption of merger and acquisition as a growth strategy in
business organization. There is no gainsaying the fact that many companies have been having
financial problems. The reason is not far fetched. This is as a result of mismanagement and
economic meltdown. In order to save such unhealthy situation in such companies from going
into liquidation, merger and acquisition can be used to revive such companies if properly
adopted. Even though merger and acquisition are used interchangeably, they have some
differences. A merger occurs when two or more separately existing companies come together to
form a new single company. Acquisition or takeover on the other hand is the purchase of
controlling power or interest in one company by another company, such that the acquired
company becomes a subsidiary or division of the acquirer. This research work highlighted the
benefits involved in the adoption of merger and acquisition as a growth strategy in business
organization. The population of the study consists of all the Nigerian companies that have
adopted merger and acquisition at one time or the other. Four (4) organizations were selected
as sample for the study using convenient and judgmental techniques of sample selection. Data
were collected from primary and secondary sources and subsequently analyzed using chisquare statistics. The finding of the study shows that merger and acquisition is an effective and
efficient growth strategy in business organization. However, the study concluded that
organizations can achieve the desired growth rate by the adoption of merger and acquisition.
Finally, the study recommends that organizations that are not doing well should adopt mergers
and acquisitions as the strategy will help the management to overcome developmental and
environmental challenges in business especially in this era of economic crises.
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TABLE OF CONTENTS
Certification -
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Approval page -
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Dedication
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Acknowledgements
Abstract
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List of tables -
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List of figures -
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CHAPTER ONE
Introduction
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1.1
Background of the study
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Statement of the problem
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Objectives of the study
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Research questions
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Research hypothesis -
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Limitation of the study
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Significance of the study
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Definition of terms
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References
CHAPTER TWO
Review of the related literature
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An overview of merger and acquisition
2.2
Historical Development of Mergers and Acquisitions
in Nigeria
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2.3
Types of merger and acquisition
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2.4
Reasons for merger and acquisition -
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2.5
Regulatory authorities in merger and acquisition-
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Facilitators in merger and acquisition -
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2.7
Basic steps to ensure legally consummated
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merger and acquisition
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Benefits of merger and acquisition
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2.9
Why merger and acquisition fail
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2.10
Effective strategies for merger and acquisition
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References
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CHAPTER THREE
Research methodology
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3.1
Research design
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Population and sample size determination
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Sources of data
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Description of instrument for primary data
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Collection
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Method of data presentation and analysis
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Statistical tool for the hypothesis testing
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The decision rule
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Data presentation, analysis and interpretation-
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4.1
Introduction
4.2
Presentation and analysis of data
4.3
Responses to the questionnaire items and test of
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References
CHAPTER FOUR
Hypothesis
4.4
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Decision rule -
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CHAPTER FIVE
Summary of findings, conclusion and
Recommendations
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5.1
Introduction
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The summary of findings
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Conclusion
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5.4
Recommendation
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5.5
Area For Further Study
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4.2
Financial report of NBC Plc before the acquisition of Nigerian Soft Drink -
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4.3
After the acquisition of NSD Plc by NBC Plc in 1987
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4.4
Financial report of John Holt Plc before the acquisition of Ogbemudia Farms
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4.5
After the acquisition of Ogbemudia Farms by John Holt plc in 1985
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4.6
Financial report of Diamond bank plc before the merger and acquisition
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After the merger of Diamond bank plc with Lion bank plc and African
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Bibliography
Appendix:
Introductory letter to the questionnaire item and the questionnaire.
LIST OF TABLES
TABLE
TITLE
International bank plc in 2005
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Financial report of UBA plc before the merger and acquisition
4.9
Post merger of United Bank for Africa plc with Standard Trust Bank plc
and Continental Trust Bank plc in 2005
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4.10
Educational qualification
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Length of service
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Position of staff
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4.13
Distribution of respondents according to the adoption of merger and
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Acquisition in their Organization
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Distribution according to the management desired goal and objective
Of the merger and acquisition
4.17
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Distribution according to the contribution of merger and acquisition to the
Structural growth and expansion of their organization
4.16
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Distribution of respondents according to the profit growth of merger and
Acquisition of their Organization
4.15
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Distribution according to the level of impact of the merger and acquisition
On their organization
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LIST OF FIGURES
FIGURE
4.2
Bar chart illustration of the profit growth of the NBC plc before the acquisition
In 1987
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TITLE
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The bar chart illustration of the profit growth of Diamond Bank plc before the
Merger
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Bar chart illustrating the profit growth of John Holt after the acquisition of
Ogbemudia Farms in 1985 -
4.6
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Bar chart representation of the profit growth of John Holt plc before the
Acquisition in 1985
4.5
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Bar chart illustration of the profit growth after the acquisition of NSD plc
by the NBC plc after the acquisition in 1987
4.4
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Bar chart illustration of the profit growth of Diamond bank plc after the merger
With Lion bank plc and African International bank plc in 2005
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4.8
Bar chart representation of the profit growth of UBA plc before the merger -
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4.9
Bar chart representation of the profit growth of UBA plc with
Standard Trust Bank plc and Continental Trust bank plc in 2005
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13
CHAPTER ONE
1.1
BACKGROUND OF THE STUDY
The framework of this study falls within the business policy and strategic management
theory. Business policy is the active process of guiding the course of a firm towards its
obligations, while strategic management is the increasing responsibility of managers to respond
to changes in the business environment through:

Strategic planning

Real time response to issue by management

Management strategic change
The focus of business policy and strategic management is how to formulate strategies to
respond to changes. Mergers and acquisitions are aspects of strategy formulation. Business
combinations which may take forms of mergers, acquisitions or otherwise takeover are
important features of corporate planning and structural changes. They have played an important
role in the external growth of a number of leading companies the world over.
In Nigeria, mergers and acquisitions were not so common until recently due to the economic
down turn. The current economic climate in the country which is characterized by shortage of
foreign exchange for the importation of goods, low exchange rate of the naira the credit policy
and globalization have increased business risks and this poses serious threats to their long term
survival. As a result, previously autonomous business organization has recently been taking
advantage of mergers and acquisitions, particularly in the banking and conglomerate sector of
14
the economy to form larger concerns needed to reduce their risks and guarantee better chances
of survival
According to Belverd (1999), Merger is the aspect of corporate strategy, corporate finance
and management dealing with the combining of different companies that can aid, finance or
help a growing company in a given industry to grow rapidly without having to create another
business entity. One or more companies may merge with an existing company through
consolidation. The new single company will inherit the assets and liabilities of the separately
existing companies which are then wound up. Merger is consummated by exchange of shares
among the merging company’s shareholders
(Nwude, 2003).
Acquisition or takeover is the purchase of controlling interest in one company by another
company such that the acquired company becomes a subsidiary or division of the acquirer
(Nwude, 2003). A company is said to acquire a controlling interest in another company if the
acquiring company (the acquirer) purchased and holds not less than 51% of the target
company’s (the acquiree) issued and fully paid-up ordinary share capital. At this level of
acquisition the acquirer company becomes the holding company while the acquiree company
becomes the subsidiary of the acquirer (Nwude ,2003).
The adoption of merger and acquisition offers many benefits to the companies which
includes management expertise, risk diversification, stock exchange quotation, increase market
share, desire for growth, technological drive, profit. Another reason for merger and acquisition
is the belief that synergies exist, allowing the companies to work more efficiently together than
15
either would separately. Such synergies may result from the firms combined ability to exploit
economies of scale, share managerial expertise and raise larger capital.
In the words of Wole Adetunji, acting Director- General, Securities and Exchange
Commission (SEC) at a seminar in June, 1997: “Mergers and Acquisitions are becoming
common features of Nigeria’s Corporate landscape. Increased awareness and development
within the economy have made such strategies very relevant in contemporary Nigeria. However,
this study is investigating how merger and acquisition can be used as aspects of growth
strategies.
1.2 STATEMENT OF THE PROBLEM
Merger and Acquisition can be adopted when an organization can no longer meet up
with its financial responsibilities due to mismanagement or economic crisis or is in need of
expanding its operative area. Companies that would have gone down or out of business, can
through the adoption of the strategy of merger and acquisition remain in operation and be
successful.
It is however, the intention of this study to investigate how some companies that adopted
the strategy of merger and acquisition in the past in Nigeria have fared after the adoption. These
findings will help in analyzing the potential benefits companies can get from the adoption of
mergers and acquisition and also erase the negative doubts surrounding the adoption of merger
and acquisition as a growth strategy in business organization.
16
1.3
OBJECTIVES OF THE STUDY
The Objectives of the study are to:

Find out the effect of merger and acquisition on the growth of selected Nigerian
companies involved in the adoption this strategy.

Find out whether the adoption of merger and acquisition has contributed to the
growth and survival of the firms drawing inference from their pre and post merger
periods.

Find out if the adoption of merger and acquisition has helped the management to
actualize their objectives in the deal.
1.4
i.
RESEARCH QUESTIONS
Do mergers and acquisitions have effect on the profit growth of the companies that
adopted the strategy?
ii.
Do mergers and acquisitions as a business strategy contribute to the growth and survival
of a firm?
iii
Do mergers and acquisitions help to achieve the desired goals and objectives of
management in the deal?
17
1.5
RESEARCH HYPOTHESIS
i.
Mergers and acquisitions do not have significant effect on the profit growth of the
companies that adopted it.
ii.
Mergers and acquisitions do not contribute significantly to the growth and survival
of a firm.
iii.
Mergers and acquisitions do not help to achieve the management desired goals and
objectives.
1.6 LIMITATIONS OF THE STUDY
In the process of carrying out this research work, some problems were encountered. The
problems include the following:
i.
Time Constraints: The limited time involved for carrying out the research and meeting
up with the approved academic calendar for the completion of the programme was not enough.
ii.
Financial Constraints: Due to limited resources at the disposal of the researcher, he
encountered financial constraints which militate against possible access to all the required
information for the study.
iii.
Attitude of Respondents: The evasive attitude of the respondents affected the research
work. Some of the respondents were unwilling to co-operate with the researcher.
18
1.7 SIGNIFICANCE OF THE STUDY
With the increase in the incidence of liquidation, economic meltdown and bankruptcy of
companies, there is need for the examination of the effect of merger and acquisition on the
performance of Nigerian organizations. It is also believed that with the study of the companies
that are involved in the use of the strategy, one would be able to assess the possibility of the
strategy being adopted in Nigerian business environment to prevent business failures, and
survival of the economic meltdown.
19
1.8
DEFINITION OF TERMS
Amalgamation (Business):
This is the mergers and acquisitions of smaller Companies
into much larger ones. (Wikipedia Dictionaries).
Acquisition: According to Nwude (2003), Acquisition is the purchase of controlling interest
in one company by another company such that the acquired company becomes a subsidiary or
division of the acquirer .
Integration: Onodugo (2002), defines it as a business growth strategy aimed at maximizing
the use of unexploited avenues in the organizations wider environment.
Merger: According to Nwude (2003), a merger is the amalgamation of two or more
separately existing companies to form a new single company. The new single company will
inherit the assets and liabilities of the separately existing companies which are then wound up.
Merger is consummated by exchange of shares among the merging company’s shareholders.
N S E: Nigeria Stock Exchange.
Risk: This is exposure to damage or financial loss.
Strategic Management: This is the organization’s process of defining its strategy or
direction and making decisions on allocating its resources to pursue this strategy, including its
capital and people ( Wikipedia ).
20
REFERENCES
Alan, C.S. (1989) Modern Corporate Finance, New York:
Macmillian publishing Company.
Anuya, D.E. (2005) Business Finance; Concept and Application, 1st Edition,
Delta State Polythenic Otefe, Oghara.
Belverd, E. Mills,S. Henry, R (1999) Financial and Managerial Accounting, New
York: Houghon Mifflin.
Haim, L and Marshall .S (1999) Capital Investment and Financial Decisions, 5th
Edition, England: Prentice Hall.
James, T. and George. B. (1998) Statistics for Business and Economics, San
Francisco: Dellen Publishing Company.
Kama, U. (2006), “Recent Reforms in the Nigerian
Issues
and Challengies” CBN Bullion,
Banking
Industry:
Vol. 30 No. 3.
Hermes, N. and Robert, L. (1996) Financial Development and Economic Growth,
New York: Rutledge publishers.
21
CHAPTER TWO
REVIEW OF THE RELATED LITERATURE
2.1
AN OVERVIEW OF MERGER AND ACQUISITION
According to Nwude (2003), The world today is continually progressing in all
ramification. Many correctly describe the world as a global village. One prominent feature of
this new community is the present existence of multinationals whose activities span many
nation borders of commerce and industry. The rise of merger and acquisition scheme scans wide
across the globe. Mergers and acquisitions are borne out of new economic realities which
emphasize the strategy of resources for maximum profitability. Mergers and Acquisitions are a
global business terms used in achieving business growth and survival. Merger entails the
coming together of two or more firms to become one big firm while acquisition is the takeover
or purchase of a small firm by big firm which are pursuing similar motives ( Amedu, 2004;
Bello, 2004; Katty, 2005).
Soludo (2004), opined that mergers and acquisitions are aimed at achieving cost
efficiency through economies of scale, and to diversity and expand on the range of business
activities for improved performance. According to Umoh (2004), mergers and acquisitions are
expected to address the problem of distress among insolvent banks without an initial resort to
liquidation. For instance, in the Nigerian banking sector, out of the 89 banks that were in
existence before 31st December 2005, it is only 25 banks that met the consolidation
requirements through mergers and acquisitions arrangement. Similarly, Uchendu (2005) and
22
Kama (2007) opined that, the bank consolidation which took place in Malaysia facilitated banks
expansion which led to growth. In a related study of the Chilean banking industry, Kwan (2002)
found that the high rate of economic activities experienced in Chile was mainly from
productivity’s improvement from the large banks formed as a result of mergers and acquisitions.
Kama (2006) opined that in many emerging markets, including Argentina, Brazil and
Korea, mergers and acquisitions has also become prominent. As banks and other businesses
strive to become more competitive and resilient to shocks as well as reposition their operations
to cope with the challenges of the increasing globalization. According to Muyiwa (2006), in
1998, a merger in France resulted in a new bank with a capital base of US$ 688 billion. While
the merger of two banks in Germany in the same year created the second largest bank in
Germany with a capital base of US$ 541 billion. However, Cornett and Terhranian (1992) and
Key (1993), find some evidence of superior post merger period because of the merged firms’
enhanced ability to attract loans. They also show increased employee productivity, increased
market power due to reduced competition and net asset growth (Okpanachi, 2006).
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2.2
HISTORICAL
DEVELOPMENT
OF
MERGERS
AND
ACQUISITIONS IN NIGERIA
Mergers and acquisitions in Nigerian business scene is relatively new compared to those of
developed countries (Adegbite, 1986). Business regrouping in Nigeria prior to 1973 when the
first phase of indigenization came into force were purely in house affairs that involved either
wholly-owned Nigeria enterprises. Nwude (2004), opined that before 1983, there was no record
of a successful merger until AG Leventis and Company limited
(a public quoted company) merged with Leventis Stores Limited (another quoted company) in
that year. With the introduction of the indigenization act of 1973, foreign businesses separately
incorporated began to regroup and come together as division of one company. This resulted in
the formation of the following companies: UAC of Nigeria, Paterson Zochanis and company
(PZ) and Associated Industries Limited. However, a successful merger deal was made between
AG Leventis and Company Limited and Leventis Stores Limited in 1983 where 100 Ordinary
shares of 50 kobo each of Leventis Stores Limited were exchanged for 83 Ordinary shares of 50
kobo each of AG Leventis and Company Limited.
In 2005, the Central Bank of Nigeria (CBN), through it bid to standardize the banking
sector brought another wave of mergers and acquisitions among banks operating in Nigeria in
order to raise their minimum capital to 25 billion naira. 25 banks out of the 85 banks survived
the ordeal. Most of them were through merger and acquisition. Nonetheless, the present
economic climate in the country which is characterized by shortage of foreign exchange for the
importation of goods, low exchange rate of the naira, the restrictive credit policy, coupled with
24
the agenda of privatization and globalization have increased business risks and poses serious
threats to their long term survival. As a result, businesses have recently been taking advantage
of mergers and acquisitions to reduce their risks and guarantee better chances of their survival
(Okpanachi, 2010).
2.3
TYPES OF MERGER AND ACQUISITION
According to Charles (2002), opined that types of mergers can be based on the
relationship between the two companies that are merging. According to Nwude (2003), they
are:
i.
Horizontal Merger: This is one that takes place between two or more firms in the
same line of business and at the same level of operation, that is, the merged firms are
former competitors. For example when two or more firms in beer manufacturing
industry merged.
ii.
Vertical Merger:
This is the combination of complementary business that is at
different stages of production or distribution, that is, the output of one is the input of the
other. The merging companies have a customer/supplier relationship. A typical example
is when soft drink bottling company or producer combined with sugar manufacturing
Company. In this case, the integration is called backward vertical merger. This is so
because the soft drink producer expands backwards towards the source of its raw
material. However, if the soft drink producer combined with a company that will serve
25
as an outlet for its finished product such as fast food chain company like MR BIGGS,
the integration is forward vertical merger. The basic objective in this type of
arrangement is to ensure a steady supply of products/services.
iii.
Conglomerate Merger:
This is the combination of companies engaged in
completely unrelated lines of business such as the combination of a pharmaceutical
company with an insurance firm. The brain behind this among others is to diversify risk.
Acquisition according to Nwude (2003) and Okpanachi (2010), is the purchase of
controlling interest in one company by another company such that the acquired company
becomes a subsidiary or division of the acquirer. Pauline (2006), said that regardless of their
category or structure, all merger and acquisition have one common goal. They are meant to
create synergy that makes the value of the combined companies greater than the sum of the two
parts.
2.4
REASONS FOR MERGERS AND ACQUISITIONS
According to Muyiwa (2006), the key common reasons that influence positively the
decision to undertake a merger or acquisition exercise are:
i.
Source of supplies: The acquiring company may be seeking to safeguard the
source of supply for Materials so that it will not be thrown out of business suddenly.
ii.
Management Expertise: The motive here is to acquire management team that
is highly experienced, aggressive, and competent of managerial tactics.
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iii.
Increased Market Share: According to Ernst and young (1995), increase in market
share is one of the plausible benefits of mergers and acquisitions. This eliminates
competition or protects an existing market. Nwude (2003), mergers often provide the
quickest entry into other markets and industries.
iv.
Risk Diversification: Diversification could be defined as the penetration of the
markets other than the company’s traditional market. Diversification therefore
spreads business risk (Nwude, 2003).
v.
Stock Quotation: A private Company unable to meet the listing requirements of
the Stock Exchange but desirous of public quotation may integrate with a publicly
quoted company in order to realize its goal (Okpanachi, 2010).
vi.
Technological Drive: A company desirous of enhancing its operations but
constrained by its inability to easily access the needed technology may be driven into
merging with another which has the technological advantage over it (Muyiwa,
2006).
vii.
Profit: The aim of merger or acquisition should be to make profit. Thus, business
combination provides a means of entering a market at a lower cost than would be
incurred if the company tried to develop its own resources.
viii. Desired for growth: A company with a view to harnessing the facilities of the
other company to achieve the desired growth may enter into merger arrangement.
27
ix.
Economy of scale: This refers to the fact that the combined company can often
reduce its fixed costs by removing duplicate departments or operations, lowering the
cost of the company relative to the same revenue stream, thus increasing profit
margins.
x.
Economy of scope: This refers to the efficiencies primarily associated with
demand-side changes, such as increasing or decreasing the scope of marketing and
distribution of different types of products.
2.5 REGULATORY AUTHORITIES IN MERGER AND ACQUISITION
According to Nwude (2003) and Okpanachi (2010), Economic theorists argue that
regulation becomes necessary because independent agents in an economy in their drive for
economic wealth do produce socially undesirable consequences termed externalities. These
externalities, the theorists argue, create detrimental effect, which is passed on the large society.
Such externalities include pollution, monopoly and market power, which may engender price
discrimination. For instance, horizontal mergers and acquisitions, which may be beneficial to
the integrating companies, could produce socially undesirable consequences if such integrations
restrain competition or lead to monopolies. Thus, the regulatory bodies involved in mergers and
acquisitions as well as their role are:
i.
The Central Bank of Nigeria (CBN): The CBN gets involved in mergers
and acquisitions where banking institutions are involved in such activities. Section 7
28
of the Banks and Other Financial Institutions Act (BOFIA) No. 25 of 1991 in
referring to mergers and acquisitions states: “ except with the prior consent of the
Governor of CBN , no bank shall enter into an agreement:
(a)
Which results in a change in the control of the bank;
(b)
For the sale, disposal or transfer howsoever of the whole or any part of the
business of the bank;
(c)
For the amalgamation or merger of the Bank with any other person; and
(d)
To employ a management agent or to transfer its business to any such agent.
Therefore mergers and acquisitions involving banks require the prior approval of the Central
Bank of Nigeria before consent of Securities and Exchange Commission (SEC) can be obtained
(Ajayi, 2007).
ii.
Securities and Exchange Commission (SEC): SEC is the apex regulatory
body of the capital market. Established under the Securities and Exchange
Commission Act No. 71 of 1979 and re-enacted as Decree No. 29 of 1988. The
Commission is charged with the functions of regulating and developing the Nigerian
Capital Market, a twin responsibility underscored by investor protection and overall
growth and development of the national economy. In more specific terms, the
commission’s functions could be stated as follows:
(a) Registering securities
(b) Ensuring transparent and fair trading practices
29
(c) Promoting professionalism, market efficiency and integrity
(d) Regulating all forms of business combinations.
iii.
Nigerian Stock Exchange (NSE): Where either combining firms are listed or
any of them is listed on the stock exchange, the approval of the NSE is required. An
application is made to the exchange to admit new shares or delete all or part of old
shares.
iv.
National Insurance Commission (NAICOM): The Insurance Decree No.2
of 1997 empowers the National Insurance Commission to regulate mergers and
acquisition within the insurance sector.
v.
Federal Board of Inland Revenue (FBIR): The role of FBIR is important
for tax purpose. FBIR values the transferred assets and calculates the capital gains
tax payable where the acquisition is consummated by cash exchange.
vi.
Federal Ministry of Finance (FMF): The FMF has to confirm the approval
status for shareholding in business especially where foreign shareholders are
involved.
vii.
Federal High Court: All merger and acquisition require the approval of the
federal high court before it is binding on shareholders.
30
2.6
FACILITATORS IN MERGER AND ACQUISITION
Nwude (2003), Garba (2006) and Augustine(2007), enumerated the facilitators in
mergers and acquisitions as follows:
i.
Financial Advisers to Integrating Companies: The financial advisers to
the combing companies advise their clients on the financial implication of the
exercise.
ii.
Reporting Accountants to the Companies: The reporting accountants to
the combining firms review the accounts prepared for the purpose of the merger and
acquisition and give their findings or opinions.
iii.
Solicitors to the Companies: The solicitors handle all legal issues on behalf of
their clients as it relates to the merger and acquisition.
iv.
Registrars:
The registrars handle the transfer of share, update register of
members, cancel old share certificate and issue new share certificates.
v.
Stockbrokers: The stockbrokers market the shares, assist in taking the shares to
the stock exchange floor.
2.7
BASIC
STEPS
TO
ENSURE
LEGALLY
CONSUMMATED
MERGER AND ACQUISITION
Akpan (2007) and Nwude (2003), opined that the procedure for legally consummating
mergers and acquisitions are as follows:31
2.8
i.
The search for a suitable company for merger and acquisition
ii.
The investigation of business
iii.
Packaging the mergers and acquisitions
iv.
Pre-merger/acquisition notice to SEC
v.
Formal Application to SEC
vi.
Post Approval documentation and filling with SEC.
BENEFITS OF MERGER AND ACQUISITION
According to Pandy (1999), Muyiwa (2004) and Kama (2007), based on the empirical
evidence and the experiences of certain companies, the most common benefits of mergers and
acquisitions are enumerated below:
i.
Provision of revenue enhancement through product extension or market dominance as a
result of reduced competition.
ii.
Cost reduction and operation of whatever remains more efficiently than before in the
hope of producing values above what was paid.
iii.
Risk diversification
iv.
Creates opportunities for excess capacity utilization
v.
Reduction in tax liability resulting from tax-loss carry forward and unabsorbed capital
allowances of one company against the profits of another.
32
vi.
Mergers often provide the quickest entry into other markets and industries, among
others.
Vii
Enhanced profitability through cost reduction resulting from economies of scale.
viii
Government encourages merger as a means of rationalizing the structure of industry to
create large economic units that makes intervention and planning easier to combat
foreign competition.
ix
The combined firms may constitute wider technological, marketing, or financial base
that increases or even creates the potential for radical innovations in many directions.
2.9
WHY MERGER AND ACQUISITION FAIL
Rhoades (1993) and Straub (2007), opined that numerous empirical studies in
United states show high failure rates of merger and acquisition deals. Druker (1982), in
his opinion however, stated that even a deal that is financially sound may ultimately
prove to be disastrous if it is implemented in a way that does not deal sensitively with
the company’s people and their different corporate cultures. There may be acute
contrasts between the altitudes and values of the two companies. Especially if the new
partnership crosses national boundaries, in which case there may also be language
barriers to contend with.
Similarly, Appelbaum (2000), said that a merger or an acquisition is an extremely
stressful process for those involved. Job losses, restructuring and the imposition of a new
corporate culture and identity can create uncertainty, anxiety and resentment among a
33
company’s employees. Tetenbaum (1999), in his opinion said that companies often pay undue
attention to the short term legal and financial considerations involved in a merger or acquisition
and neglect the implication for corporate identity and communication. Factors that may prove
equally important in the long run because of their impact on workers morale and productivity.
Also, managers suddenly deprived of authority and promotion opportunities can be particularly
bitter. Sometimes there may be specific personality clashes between executives in the two
companies (Stiroh, 2002).
2.10 EFFECTIVE STRATEGIES FOR MERGER AND ACQUISITION
Merger and Acquisition is often a unique one-off event in the life time of a firm.
Companies therefore have no opportunity to learn from their experience and develop
tried and tested method to ensure that the process is carried out smoothly. The
integration of acquired company is an ongoing process that should be initiated before the
deal is actually closed. During this period in which the negotiation is being negotiated
and subjected to regulatory review, the management of the two companies can liaise
with each other and draw up a clear integration strategy. If uncomfortable changes such
as lay off and restructuring have to be made at the acquired company, it is important that
it is announced and implemented as soon as possible. This helps to avoid the
uncertainties and anxieties that can demoralized the workforce of a newly acquired
company, allowing employees to move on and focus in the future.
It is important to
integrate not just the practical aspects of the business but also the firm’s workforce and
their cultures. That is, not only the legal and financial implications, but also the human
34
consequences. According to Telenbaum (1999), seven key practices to assist with a
successful merger or acquisition are:
i.
Close involvement of human resource managers in the acquisition process, they should
have a say in the process of merger and acquisition because the success or failure of any
organization depend on its human resources.
ii.
Building organizational capacity by ensuring that close attention is paid to the retention
and recruitment of employees during the acquisition.
iii.
Ensuring that the integration is focused on achieving the desired effect, (for instance cost
savings) while at the same time ensuring that core strengths and competencies of the two
companies are not damaged by the transition.
iv.
Carefully managing the integration of the organizations culture.
v.
Completing the acquisition process quickly since productivity is harmed by the
disorganization and demoralization that inevitably occur while the change is under way.
vi.
Communicating effectively with everyone who will be affected by the change.
vii. Developing a clear standardization integration plan. That is an integration plan overseen
by a dedicated manager with the experience and interpersonal skills to calm employees’
anxieties and reconcile cultural differences.
Being truthful, open and forthright during an acquisition is vital in helping employees to
cope with the transition (Applebaum, 2000).
35
REFERENCES
Ajayi, O.A. (2007) Banking: Law and Ethics, Ibadan: Bash-Moses Printing & Publishing Co.
Akpan, A.B. (2007) “Effectiveness of Bank Capitalization and Consolidation in building
markets confidence” An assessment of customers perception in Nigeria, Abuja journal,
December 2.
Amedu, S.(2004) “Corporate Takeover, Acquisition and Merger” Journal of Chartered Institute
of Stockbrokers, January- march.
Applebaum, S.H. and Yortis, H. (2000) “Anatomy of a merger: Behaviour of organizational
factors and processes throughout the pre-during-post stages” Management Decision.
Augustine, N.K. (2007) “Impact of Nigeria’s Bank Consolidation on shareholder’s Returns”
African Institute of Economic Development and planning.
Bello, M.S. (2004)” Mergers and Acquisition as a strategy for business Growth in Nigeria”
paper presentation.
Cartwright, S. and Cooper, C.L. (1996) Managing Mergers, Acquisitions and Strategic Alliance
2nd Edition, Heinemann.
Charles, W.L. (2002) International Business 3rd Edition, new York: MC Graw-Hill.
Cornett, M.M and Tehranian, H. (1992) “Changes in corporate performance associated with
Banks Acquisitions” Journal of Finance and Economics, April edition.
Cowling, K.S. and Cubbin, J. (1979) mergers and Economic Performance , Cambridge
University press.
36
Emekekwue, P.E. (2008) Corporate Financial Management, 6th Edition; Democratic Republic
of Congo: African Bureau of Educational Sciences Kinshasa.
Garba, A.A.(2006) Recent Reforms in the Nigerian banking industry: Issues and Challenges,
The Financier, A.B.U Zaria
Muhammed, R. (2005) Understanding Mergers and Acquisitions, Business Day Newspaper,
February17th.
Muyiwa, O. (2007) “Post Consolidation Challenges In Nigerian Banking Sector” CBN Briefs,
2006-2007 Edition.
Nwude, C.E. (2003) Basic Principles of Financial Management, 1st Edition, Enugu: Chuke
Nwabude Nigeria.
Okpanachi, J. (2007) “Comparative Analysis Of The Impact Of Mergers And Acquisitions
On Financial Efficiency Of Banks In Nigeria” Journal Of Accounting And Taxation Vol.3, No.
1
Onodugo, V.A. and Ezeh, J.A. (2002) Business Policy and Strategic Management: Issues and
Trends, Enugu: Kinsman publishers Limited.
Thomas, S. (2007) Reasons for frequents failure in Mergers and acquisition. A comprehensive
analysis weisbaden, Deutsher Universitatsverlag
Rhoades, S.A. (1993) “The efficiency Effects of bank mergers” An overview of case studies of
nine mergers, Journal of Banking, vol. 22.
Straub, T. (2007) “Reasons for frequent failures in Mergers and Acquisitions” a comparative
analysis: Deutscher University Verlag, Wiesbaden.
37
Telenbaum, T.J. (1999) “Beating the odds of merger and acquisition failure: seven key practice
and improve the chances for expected integration and strategies: Organizational
Dynamics, autumn.
Uche, H.O. (2006) New Approach to International Finance, Lagos. The CIBN Press Limited.
Uchendu, O.A. (2005) “Banking sector reforms and bank consolidation: The Malaysian
Experience , CBN Bullion , April/June.
38
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN
Ugwuonah, Onodugo and Ebinne (2010), defines research design as the plan or blueprint on how to go about data collection and analysis, all aimed at providing solutions to the
problem under investigation. Broadly speaking, it entails the specification of procedures that
would be deployed in the field work (Chukwuemeka ,2002). Also Ezeja (2005) puts it as a
framework or guide used in collecting and analyzing data the for a study. The specific purpose
of research design is to obtain data that will enable the researcher to test the pre-set hypothesis
or answer research questions of the study ( Asika ,1991). In particular, it seeks to answer the
questions about the what, where, when, how and by what means data would be generated to
provide the solutions under investigation ( Eboh, 2009).
On this note, this chapter will be divided into different sub headings to enhance the
possibility of gathering data relevant for this study. These sub-headings include:- population
and sample size determination, sources of data, description of instrument for data collection,
method of data presentation and tool for data analysis.
39
3.2
POPULATION AND SAMPLE SIZE DETERMINATION
According to Ugwuonah, Onodugo and Ebinne (2010), population is the entire
aggregation of cases which meet a designated set of criteria. The total population for this study
consists of all the Nigerian Companies that have used merger and acquisition as growth strategy
at one time or the other. Sample according to Ugwuonah, Onodugo and Ebinne (2010), is a
fraction or segment of the total population whose characteristics is used to represent the entire
population. However, it is not possible to study the whole population. It is rather natural that a
sample of the representation of the population be selected to represent the entire population and
its characteristics. Thus, this study selected four organizations as the sample for the study using
convenient and judgmental techniques of sample selection. To be selected as a sample, the
organizations must meet the following criteria:

They must retain there identities prior to and after the merger and acquisition
activities.

Members of the group as a result of merger and acquisition bid must not exceed
three (3).

Their Managing Directors were never sacked by the regulatory authorities under the
reform.
These organizations are:

Diamond Bank that merged with Lion’s Bank and African
International Bank (AIB) in 2005.
40

United Bank for Africa (UBA) that merged with Standard Trust Bank (STB) and
Continental Trust Bank in 2005.

Nigerian Bottling Company (NBC) Plc which acquired the Nigerian Soft Drink in 1987.

John Holt Limited that acquired Ogbemudia Farms in 1985.
These organizations will be reviewed under pre-merger and acquisition period and post-merger
and acquisition period. This will give a clear assessment of their performance using their
financial report before and after the merger and acquisition period. This will help us also to
review two organizations that adopted merger and acquisition in 1980’s and two banks that
adopted the strategy lately (2000’s).
3.3
SOURCES OF DATA
The data for this study were obtained through primary and secondary sources. The
reason why both data was used is to answer the research questions and test the research
hypothesis.
3.4 DESCRIPTION OF INTRUMENT FOR PRIMARY DATA
COLLECTION
The research instrument for this study was the questionnaire and the organization’s
financial report. The study utilized a standard questionnaire designed to elicit relevant
information on the effect of the adoption of merger and acquisition as a growth strategy in
41
business organizations. The number of questions was kept to a minimum. Only the relevant
questions which were designed to find answers to the research questions were asked.
3.5 METHOD OF DATA PRESENTATION AND ANALYSIS
According to Ugwuonah Onodugo and Ebinne (2010), data presentation and analysis is
a process of giving meaning to raw data. It involves the practice of collating, organizing and
ordering of raw data in order to extract useful information from it. The data collected in the
course of this study were arranged and analyzed in tabular form, percentages, degrees and bar
charts. Response view shall be analyzed and the views of the majority shall be assumed as the
dominant views.
3.6
STATISTICAL TOOL FOR THE HYPOTHESIS TESTING
The hypothesis was tested using the chi-square (x2) statistical tool, given the formula
(Unamka P.C. and Chukwu, C.O. 2002).
X2 = ∑
(O-e)2
E
Where:
X2 is the chi square
O is the observed outcome
e is the expected frequency
42
Degree of freedom = n-1
Level of significance =5%
3.7
THE DECISION RULE
Accept null hypothesis (Ho) if the calculated value, X2 value is less than the table value
other wise reject.
43
REFERENCE
Emma, E.O.C, (2006), Research Method and Thesis writing; Multi-disciplinary Approach,
Enugu: HRV Publishers.
Ezeja, E.O, (2007), Project Writing, Research Best practices, Enugu: Adels Foundation
publishers.
Joe, A.I. (1992), Fundamental of statistics, Ibadan Kraft books
Muyiwa, O. (2004), “Post Consolidation Challenges In Nigerian Banking Sector” CBN Briefs
2006-2007 Edition.
Onwumere, J.U.J, (2005), Business and Economic Research Methods, Lagos: Don-Vinton
Limited.
Osuala, E.C, (2001), Introduction to research Methodology, Onitsha: African Feb Publishers.
Ugwuonah, G. Onodugo, V. and Ebinne, E. (2010), Social Science Research; Principles,
methods and Application, Enugu: EL’DEMARK Publishers.
Unamka, P.C. and Chukwu, C.O. (2002), Analytical Management, Enugu: Sentil publishers
limited.
44
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 INTRODUCTION
The importance of this chapter is to present and analyze the data collected for the
study from primary and secondary sources. The results of the annual financial reports of
the companies for the period under study will be analyzed using tables and the bar chart.
In the course of gathering the data, a total of 40 questionnaires were distributed to the
respondents. Out of which 36 were properly filled and returned, representing 90%.
However, the 36 will be the effective number and were used for the analysis. In testing
the hypothesis of the research work, the answers from the questionnaire will be analyzed
using the chi-square (X2). It is essential to mention that some of these responses will be
analyzed in tabular form while others will be analyzed without presenting them in tables.
4.2
PRESENTATION AND ANALYSIS OF DATA.
The financial report of the organizations under review will comprise of four years before the
adoption of merger and acquisition strategy and four years after the adoption of merger and
acquisition.
Table 4.2: Four Years Financial Report of Nigerian Bottling Company Plc before the
Acquisition of Nigeria Soft Drink in 1987.
45
BEFORE THE ACQUISITION
Year
Turnover
Profit
1983
210,771
40,946
1984
226,703
52,355
1985
204,922
41,953
1986
309,330
56,474
Source: extracted from annual report and accounts
Table 4.3
AFTER THE ACQUISITION
Year
Turnover
Profit
1988
526,772
63,121
1989
759,852
77,711
1990
1,182,028
108,394
1991
1,151,924
153,072
Source: extracted from annual report and accounts
46
Figure 4.2: Bar chart representation of the above information on the profit growth of the
organization before the acquisition.
Before the Acquisition
47
Figure 4.3: Post Acquisition
48
Table 4.4: Four Years Financial Report of JOHN HOLT Plc before the Acquisition of
OGBEMUDIA FARMS.
John Holt Plc before the Acquisition
Years
Turnover
Profit
1981
291,850,000
13,027,000
1982
301,046,000
15,976,000
1983
264,633,000
16,869,000
1984
238,404,000
22,162,000
Source: extracted from annual report and accounts
TABLE 4.5: Four Years Financial Report of JOHN HOLT Plc after the acquisition of
Ogbemudia Farms.
Post Merger and Acquisition
Years
Turnover
Profit
1986
267,800,000
37,100,000
1987
288,600,000
29,200,000
1988
401,100,000
25,100,000
1989
765,200,000
76,900,000
Source: extracted from annual report and accounts
49
Figure 4.4: Bar Chart Representation Of Profit Growth Of JOHN HOLT PLC, According To
The Above Information.
Pre Merger and Acquisition
50
Figure 4.5 Bar Chart Representation Of Profit Growth Of JOHN HOLT PLC, According To
The Above Information.
Post Merger and Acquisition
51
Table 4.6: Four Years Financial Report of Diamond Bank Plc before the Consolidation of
the Banking Sector in 2005. When It Merged With Lion Bank Plc And African International
Bank Plc.
Pre Consolidation Era of Diamond Bank plc
Years
2001
2002
2003
2004
(NM)
(NM)
(NM)
(NM)
7,533,145
6,073,164
7,364,164
12,153,812
4,806,417
5,751,861
5,892,784
7,876,222
1,945,994
317,337
1,161,746
3,522,317
Taxation
467,817
172,264
328,248
995,765
Profit After
1,478,175
345,849
833,498
2,526,552
Net Operating
Income
Operating
Expenses
Profit Before
Taxation
Taxation
Source: Published annual report and accounts
52
Table 4.7: After the Merger of Diamond Bank with Lion Bank Plc And
African International Bank Plc.
Years
2006
2007
(NM)
Net Operating
2008
(NM)
2009
(NM)
(NM)
17,360,333
29,443,918
44,211,851
66,598,400
Operating Expenses
16,087,700
18,665,528
24,570,069
36,504,408
Profit Before
4,110,524
8,792,775
15,059,114
8,343,738
3,321,125
6,930,754
11,822,011
6,931,127
Income
Taxation
Profit After Taxation
Source: Published annual report and accounts.
53
Figure 4.6: Bar chart representation of profit growth of Diamond Bank PLC, according to the
information above.
Pre Merger / Acquisition of Diamond Bank PLC
54
Figure 4.7: Post Merger of Diamond Bank PLC with Lion Bank plc and
African International Bank.
55
Table 4.8: Four Years Financial Report of United Bank for Africa Plc, before the Merger and
Acquisition with Standard Trust Bank Plc and Continental Trust Bank Plc.
Pre Consolidation Era of UBA Plc.
Years
Gross Earnings
Profit
2001
2002
2003
2004
(NM)
(NM)
(NM)
(NM)
23,720,000
24,510,000
26,089,000
4,816,000
6,010,000
6,520,000
1,827,000
1,485,000
1,899,000
2,989,000
4,525,000
4,921,000
22,112,000
Before 2,238,000
Taxation
Taxation
Profit
877,000
After 1,361,000
Taxation
Source: Published annual report and accounts.
56
Table 4.9: Post merger of UBA plc With Standard Trust Bank and
Continental Trust Bank Plc.
The Post Merger of UBA Plc with STB Plc and CTB plc
Years
2006
2007
2008
2009
(NM)
(NM)
(NM)
(NM)
Gross Earning
90,447,000
109,512,000
169,581,000
198,149,000
Profit Before
12,811,000
25,364,000
48,029,000
-
Taxation
1,261,000
3,923,000
7,204,000
-
Profit After
11,550,000
21,441,000
40,825,000
72,370,000
Taxation
Taxation
Source: Published annual report and accounts.
57
Figure 4.8: Bar Chart Representation of the Profit Growth of United Bank for Africa PLC,
According To the Information Above.
Pre Merger of United Bank for Africa Plc.
58
Figure 4.9:
Post Merger / Acquisition of United Bank PLC with Standard Trust Bank Plc
and Continental Trust Bank.
59
BRIEF HISTORY OF NIGERIAN BOTTLING COMPANY (NBC) PLC
The Nigerian Bottling Company (NBC) plc was incorporated in November 1951, as a
subsidiary of the A.G.Leventis Group with the franchise to bottle and sell coca-cola products in
Nigeria. Production began in 1953 at a bottling facility in Ebute Metta, Lagos. In 1987, it
acquired the Nigerian Soft Drink. Over the years, its production capacity has continue to grow
from strength to strength, presently NBC has about thirteen (13) bottling facilities and over
seventy (70) distribution warehouses across the country.
Since production started , NBC has remained the largest bottler of non-alcoholic
beverages in the country in terms of sales volume, with about 1.8 billion bottles sold per year.
The company in August 2001, reacquired the Schweppes franchise bottled in bitter-lemon, clubsoda, tonic water and pineapple flavours. The company is driven by a culture of passion for
excellence sophisticated technology and the best distribution network in the country.
60
BRIEF HISTORY OF JOHN HOLT NIGERIA PLC
The Liverpool Company owned by John Holt and Co formed a locally incorporated subsidiary
in Nigeria in 1961, John Holt limited to hold its Nigerian interests. It became a public company
quoted on the floor of Nigerian Stock Exchange (NSE) in 1974. In 1985, John Holt plc acquired
Ogbemudia Farms .The company’s business in Nigeria includes assembly, distribution of firefighting equipments, equipment leasing
distribution of power generators, logistics, boat
building, industrial and agricultural equipment manufacturing.
The company is divided into three business areas, viz: Technical product and Leasing services,
Distribution and Marine.
61
BREIF HISTORY OF DIAMOND BANK PLC
Diamond Bank Plc began operation as a private limited liability Company on March 21,
1991. The company was incorporated in December 20th, 1990. Ten years later, in February
2001, it became a universal bank. In January 2005, following a highly successful private
placement share offer which substantially raised the Bank’s equity share base, Diamond Bank
became a public limited liability company. In May 2005, the bank was listed on the Nigerian
Stock Exchange (NSE) as a publicly quoted company. Following the banking consolidation in
2005, Diamond Bank merged with Lion Bank Plc and African International Bank (AIB) in
order to increase its competitive advantage and enlarged opportunity for growth. This merger
enhanced its national coverage given Lion Banks relative stronger presence in some regions in
the country especially the middle belt and AIB also in some major region in the country
especially south east.
Today, Diamond Bank is one of the leading banks in Nigeria respected for its excellence
culture and service delivery, driven by innovations and operating on the most advanced banking
technology platform in the market.
62
BRIEF HISTORY OF UNITED BANK FOR AFRICA (UBA) PLC
The Bank bestrides the Nigerian banking landscape like a colossus. It was established in
1961. Presently, it is the largest financial services group in Nigeria cum West Africa. United
Bank For Africa (UBA) Plc was the first Nigerian bank to be listed on the floor of the Nigerian
Stock Exchange (NSE) by way of Initial Public Offer (IPO) in 1970. In 2005, UBA Plc merged
with Standard Trust Bank (STB) Plc. During the period, there was also a take-over of the
Continental Trust Bank Plc.
Today, the consolidated UBA Plc is the largest financial services institution in Nigeria and West
Africa.
63
4.3 RESPONSES TO THE QUESTIONNAIRE ITEMS
Questionnaire Item 1
What is your educational qualification?
Table 4.10: Respondents’ Educational Qualification.
Options
Frequency
Percentage
Degree
A
FSLC
-
-
-
B
WASC/GCE
-
-
-
C
OND/NCE
-
-
-
D
B.Sc/B.A/HND
12
33.3
1200
E
Above B.Sc
24
66.7
2400
Total
36
100
3600
Source: compiled by the researcher
From the above table (table 4.10), 12 respondents representing 33.3% posses B.Sc/HND. While
24 respondents, representing 66.7% have above B.Sc degree. Based on the responses, the
researcher was optimistic that all the respondents are graduates and thus can give a better view
of merger and acquisition of business organizations.
64
Questionnaire Item 2
How long have you been in your company?
Table 4.11: Distribution according to Length of Service.
Option in
No. of
Percentage
Degree
Years
Response
A
1-5
5
13.9
50
B
6-10
17
47.2
170
C
Above 10
14
38.9
140
Total
36
100
360
Source: compiled by the researcher
From the above distribution (Table 4.11), 5 respondents representing 13.9% replied that they
have been in the company for 1-5 years. 17 respondents representing 47.2% confirmed that they
have been in the company for 6-10 years, while 14 responses indicated that they have served the
company for above 10 years. However, the researcher was of the opinion that based on the
responses, it is evident that the respondents have putting in a reasonable number of years in the
service of the company. As such, they are in a better position to supply useful information
concerning the organization under study based on the subject matter.
65
Questionnaire Item 3
What is your position?
Table 4.12: Distribution according to their Position
Options
No. of
Percentage
Degree
Responses
A
Junior staff
0
0
0
B
Senior staff
16
44.4
160
C
Manager
20
55.6
200
Total
36
100
360
Source: compiled by the researcher.
From the above information, it is evident that the respondents are the senior and the
management team.
Questionnaire Item 4
Has your organization adopted merger and acquisition before?
Table 4.13: Distribution of respondents according to their responses on the above
questionnaire item
Responses
Frequency
Percentage
Degree
Yes
36
100%
360
No
-
-
-
Total
36
100%
360o
Source: compiled by the researcher.
66
From the table above (table 4.13 ), all the respondents representing 100% have adopted merger
and acquisition in their organization and this will give a better and clearer understanding of
merger and acquisition as a growth strategy in business organization.
TEST OF HYPOTHESIS
Statement of Hypothesis 1
H0:
Mergers and Acquisitions do not have significant effect on the profit growth of the
companies that adopted it.
Hi:
Mergers and Acquisitions do have significant effect on the profit growth of the
companies that adopted it.
The above hypothesis was being tested with the questionnaire item below.
Did the adoption of merger and acquisition improve the profit growth of your company?
Table 4.14: Distribution of respondents according to their responses to the above
questionnaire item.
Responses
Frequency
Percentage
Degree
Yes
32
88.9%
320O
No
4
11.1%
40O
Total
36
100%
360o
Source: compiled by the researcher.
67
From table 4.14 above, it could be observed that Thirty two (32) out of the thirty six (36)
respondents, representing 88.9% top management had the opinion that merger and acquisition
indeed improved the profit of their organization. However, four (4) respondents, representing
11.1% has a contrary view or opinion. Subjecting the above responses to the statistical test of
significance to ascertain the rejection or otherwise acceptance of the null hypothesis using the
Chi-Square Statistics. For more explanation on the formula, please refer to the previous chapter
(chapter three).
Ho: Null hypothesis
Hi: Alternative hypothesis
Now from Table 4.14 above
Responses
0
(0-E)2
E
(0-E)2
E
Yes
32
18
196
10.9
No
4
18
196
10.9
Source: compiled by the researcher
X2 = ∑ (O-E)2
E
= 21.8
68
4.4 THE DECISION RULE
Accept null hypothesis (Ho) if the calculated X2 value is less than the table value. Other wise,
reject. Since the calculated Chi-square statistics (21.8) is greater than the Chi-square critical
value (3.841) at 5% level of confidence and at 1 degree of freedom, we Reject the Null
hypothesis (Ho) and accept the Alternate hypothesis (Hi) that states that, Mergers and
Acquisitions do have significant effect on the profit growth of the companies that adopted it.
Statement of Hypothesis 2
HO:
Mergers and Acquisitions do not contribute significantly to the growth and survival of a
firm.
Hi:
Mergers and Acquisitions do contribute significantly to the growth and survival of a
firm.
The above hypothesis was tested with questionnaire item below.
Did merger and acquisition contribute to the structural growth and expansion of your
organization?
69
Table 4.15: Distribution of respondents according to their responses to the above
questionnaire item.
Responses
Frequency
Percentage
Degree
Yes
29
80.6%
290.20
No
7
19.4%
69.80
Total
36
100%
3600
Source: compiled by the researcher.
From table 4.15 above, it could be observed that Twenty nine (29) respondents, representing
80.6% had the opinion that merger and acquisition indeed contributed to the structural growth
and expansion of their organization. While seven (7) respondents, representing 19.4% has a
contrary view or opinion. Also subjecting the above information to the statistical test of
significance to ascertain the rejection or otherwise acceptance of the null hypothesis using the
Chi-Square Statistics.
Ho: Null hypothesis
Hi: Alternative hypothesis
70
Now from Table 4.15 above
Responses
0
(0-E)2
E
(0-E)2
E
Yes
29
18
121
6.7
No
7
18
121
6.7
Source: compiled by the researcher.
X2 = ∑ (O-E)2
E
= 13.4
THE DECISION RULE
Accept null hypothesis (Ho) if the calculated X2 value is less than the table value. Other wise,
reject. Since the calculated Chi-square statistics (13.4) is greater than the Chi-square critical
value (3.841) at 5% level of significance and at 1 degree of freedom. We Reject the Null
hypothesis (Ho) and accept the Alternate hypothesis (Hi) that states that: Mergers and
Acquisitions do contribute significantly to the structural growth and expansion of
the
organization that adopted the strategy.
71
Statement of Hypothesis 3
H0:
Mergers and Acquisitions do not help to achieve the management desired goal and
objective.
Hi:
Mergers and Acquisitions helps to achieve the management desired goal and objective.
The above Hypothesis was tested with questionnaire item below.
Did your organization achieve the desired management goal and objective of the merger and
acquisition?
Table 4.16: Distribution of respondents according to their responses to the above
questionnaire item.
Responses
Frequency
Percentage
Degree
Yes
31
86.1
3100
No
5
13.9
500
Total
36
100%
360o
Source: compiled by the researcher.
From table 4.16 and above, it could be observed that Thirty one (31) respondents, representing
86.1% had the responses that merger and acquisition however helped
management achieve
their desired goal and objective. While five (5) respondents, representing 13.9% had a contrary
view.
72
Thus, subjecting the above responses to the statistical test of significance to ascertain either the
rejection or acceptance of the null hypothesis using the Chi-Square Statistics.
Ho: Null hypothesis
Hi: Alternative hypothesis
Now from Table 4.16 above
Responses
0
E
(0-E)2
(0-E)2
E
Yes
31
18
169
9.4
No
5
18
169
9.4
Source: compiled by the researcher.
X2 = ∑ (O-E) 2
E
= 18.8
THE DECISION RULE
Accept null hypothesis (Ho) if the calculated X2 value is less than the table value. Other
wise, reject.
Since the calculated Chi-square statistics (18.8) is greater than the Chi-square critical value
(3.841) at 5% level of confidence and at 1 degree of freedom. We reject the null hypothesis
73
(Ho) and accept the alternate hypothesis (Hi) that states that: Mergers and Acquisitions helps to
achieve the management desired goal and objective.
What are the effect of merger and acquisition to your organization?
Table 4.17: Distribution of respondents according to their responses to the above questionnaire
item.
Impact
Frequency
Percentage
Increase in the number of
7
19.4%
Increase in Market share
9
25%
Improved workforce
3
8.3%
branches
Increase in product line
Economy of scale
2
6
Reduction in Competition
Total
9
36
5.6%
16.7%
25%
100%
Source: compiled by the researcher.
74
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1
INTRODUCTION
The essence of this last chapter is to present the summary of findings from this research work as
it was carried with regards to the subject matter which is “Merger and Acquisition as a growth
strategy in business organizations”. From these findings, the researcher will make some
recommendations and also draw conclusion.
5.2
THE SUMMARY OF FINDINGS
Based on the research conducted, the followings are the findings:
1. That Merger and Acquisition is an effective and efficient growth strategy in business
organization.
2. The turnover of the organizations studied improved after they adopted merger and
acquisition.
3. There has been efficient allocation of resources and risk reduction arising from
management expertise.
4. Merger and Acquisition brought about synergic benefit.
5. In the case of the banks, merger and acquisition has strengthened them to meet the
challenges of the 21st century banking business. In the bid to raise adequate capital of 25
billion naira, the banks have been freed from reliance on public sector funds.
75
6. The adoption of merger and acquisition has also helped the organization expand both in
market size, reduction in competition and increase in branch network.
5.3
CONCLUSION
This work attempted to ascertain the adoption of merger and acquisition as a growth strategy in
business organizations. It has become obvious from the study that merger and acquisition is
quite indispensible as far as organizations growth, long term survival and development are
concerned. The results however showed that the organizations not only improve in profit but
also in synergy and expansion. It is indeed evident that a company that is not able to grow at a
fast rate by internal expansion or as a result of stiff competition can achieve the desired growth
rate faster by the adoption of merger and acquisition
Finally, merger and acquisition should be adopted when companies are not performing well.
This will help the management of such organizations to overcome developmental and
environmental challenges especially in era of economic crisis.
5.4
RECOMMENDATIONS
Based on the findings of the study and taking cognizance of the importance of the subject matter
under study to the business organizations, the researcher was inclined to make the following
recommendations:
1. That merger and acquisition should be resorted to as it promotes growth especially in the
case of business that is not performing well.
76
2. Merger and Acquisition should be adopted as a viable alternative to organizations than
failing and folding up with costly consequences to their owners and economy which
increases unemployment.
3. The management of companies that have adopted merger and acquisition should identify
high-risk areas of their business and make sure they receive adequate attention on-an-on
going basis. This should be done for strategic positioning.
4. There should be a harmonization of corporate culture in companies that are adopting
merger and acquisition.
5. There should be a system integration of the companies that adopted merger and
acquisition as a growth strategy in their business organization to avoid disintegration and
collapse of the strategy.
5.5 AREA FOR FURTHER STUDY
In view of the findings of the research, the researcher calls for further study specifically on:
Why Merger and Acquisition of Business Organizations Fail.
77
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81
Department of Management,
Faculty of Business Administration,
University of Nigeria, Enugu Campus.
Dear Respondent,
INTRODUCTORY LETTER TO THE QUESTIONNAIRE
I am a post graduate student of the Department of Management, Faculty of Business
Administration, University of Nigeria and carrying out a research work on “Merger and
Acquisition as a growth strategy in business organizations”. You are kindly requested to
answer the attached questions to the best of your knowledge to enable the researcher attain the
stated objective.
However, this research work is purely for academic purposes. So be assured that, any
information supplied by you will be treated with utmost confidentiality.
Thanks for your co-operation.
Yours faithfully,
Ukandu Richard .A.
(Researcher)
82
SAMPLE OF QUESTIONNAIRE
INSTRUCTION
Please tick
(√ ) in the box provided for the answer you consider appropriate.
1.
Sex?
a.
Male
(
b.
Female (
)
2.
Marital status?
a.
Single
(
)
b.
Married
(
)
3.
What is your educational qualification?
a.
Below WASC
(
)
b.
WASC/GCE
(
)
c.
OND/NCE
(
)
d.
HND/B.SC/B.A
(
)
e.
Above B.Sc
(
)
)
83
4.
How long have you been in your company?
a.
1-5
(
)
b.
6-10
(
)
c.
Above 10 years
5.
What is your position?
a.
Junior staff
(
)
b.
Senior staff
(
)
c.
Management (
)
6.
Has your organization adopted merger and acquisition before?
a.
Yes
(
)
b.
No
(
)
7.
Do you think that merger and acquisition have improved the profit growth of your
(
)
company?
a.
Yes
(
)
b.
No
(
)
84
8.
Did merger and acquisition contribute to the growth and survival of your company?
a.
Yes
(
)
b.
No
(
)
9.
Did your organization achieve the desired management goal and objective?
a.
Yes
(
)
b.
No
(
)
10.
What are the effect of merger and acquisition to your organization?
a
Increase in the number of branches
(
)
b
Increase in the market share
(
)
c
Improved workforce
(
)
d
Increase in production line
(
)
e
Reduction in competition
(
)
f
Economy of scale
(
)
g
All of the above
(
)
h
None of the above
(
)
85