ASSESSMENT OF MERGER AND ACQUISITION AS A SURVIVAL TOOL FOR ORGANIZATION
ABSTRACT
Merger
and acquisition has been widely acclaimed by scholars and professionals in
business as the most desirable and effective strategy to revive the difficult
situations facing Nigeria
economic climate. The situation is so terrible that organizations had to turn
around and adopt strategy to survive through this turbulent water. This research work has the objective
undertaking to examines, analyze and evaluate the effectiveness of merger and
acquisitions as a strategy for organizational survival in Nigeria and
investigates whether it can result to economic of scale and increase
profitability of the combined firms. To this end, questionnaire were
administrated to Oando Nigeria Plc and some few other organizations that
merged. The data and information collected were analyzed using simple tables,
frequencies and percentages. The findings of this research reveals that merger
and acquisitions brings about improve in the productivity of the emerged
organizations. The researcher is of the opinion that, based on the findings,
the recommendations made if properly followed, it will improve the activities
of merger and acquisition for the benefit of the government, proposing
organizations and the interested public at large.
TABLE OF CONTENTS
Cover
page – – – – – – – – – i
Title
page – – – – – – – – – – ii
Declaration – – – – – – – – – – iii
Approval
page – – – – – – – – – iv
Dedication – – – – – – – – – – v
Acknowledgement – – – – – – – – vi
Abstract – – – – – – – – – – viii
Table
of content – – – – – – – – – ix
CHAPTER ONE – Introduction
1.0 Background of the study – – – – – – 1
1.1 Historical Background of Oando Nigeria Plc – – – 3
1.2 Statement of the general problem – – – – – 5
1.3 Objective of the study – – – – – – – 6
1.4 Significance of the study – – – – – – 8
1.5 Research question – – – – – – – 9
1.6 Statement of hypothesis – – – – – – 10
1.7 Scope and limitation of the study – – – – – 10
1.8 Definition of terms – – – – – – – 12
CHAPTER TWO – Review of
Related Literature
2.0 Introduction – – – – – – – – 14
2.1 Merger and Acquisition definitions – – – – – 14
2.2 Types of Merger – – – – – – – – 16
2.3 Strategies for business survival – – – – – 18
2.4 Motive behind merger and acquisition – – – – 19
2.5 Reason for merger and acquisition preference
over
investment in new business generated
from scratch – – 23
2.6 Procedure for effective merger – – – – – 26
2.7 Method of financing merger – – – – – – 28
2.8 Merger and acquisition investment banking – – – 31
2.9 Merger and acquisition market place
difficulties – – 32
2.10 The effect of merger and acquisition – – – – 35
2.11 Legal issues in M & A – – – – – – – 36
2.12 Regulation of M & A in Nigeria – – – – – 37
2.13 Summary of the review – – – – – – – 40
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction- – – – – – – – – 42
3.1 Area of study – – – – – – – – 42
3.2 Research design – – – – – – – – 43
3.3 Research population – – – – – – – 43
3.4 Sample and sampling technique – – – – – 44
3.5 Data collection instruments – – – – – – 44
3.6 Data collection method – – – – – – – 46
3.7 Validity and reliability of the instrument – – – – 46
3.8 Administration of research instruments – – – – 47
3.9 Techniques of data analysis (mode) – – – – 47
CHAPTER FOUR – Presentation and
Analysis of Data
4.0 Introduction – – – – – – – – 49
4.1 Respondent characteristic and classification – – – 49
4.2 Presentation and Analysis of data – – – – – 50
4.3 Testing of hypothesis – – – – – – – 58
4.4 Summary of findings – – – – – – – 60
CHAPTER FIVE – Summary,
Conclusion and Recommendation
5.0 Introduction – – – – – – – – 62
5.1 Summary – – – – – – – – 62
5.2 Conclusion – – – – – – – – – 65
5.3 Recommendations – – – – – – – 65
Bibliography – – – – – – – – – 68
Appendix
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
The increase in oil boom in the 70’s was an era of huge
and expensive prospect of doubtful utility and viability. However, the heavy
dependence on oil and imported input rendered the Nigerian economy to be
sensitive to external shocks with the collapse of the world oil market in the
mids 1981, an economic crisis emerged in Nigeria, various control measures were
put in place in order to correct the disturbing situation between 1982 – 1985
but these measures failed to deal effectively with the fundamental economic and
financial problems confronting the economy which was deteriorating.
The nation began to face a situation of persistence and
deteriorating balance of payment problem, the external debt continually rise,
the emotion of international credit worthiness and the acute shortage of raw
materials and consumer goods, as agriculture suffered and severely, neglected,
the country (Nigeria) was at the point of collapsing.
Considering the above circumstances, there is need for
national economic reform which the federal government eventually came up with
Structural Adjustment Programme (SAP) in 1988 as a strategy to end the
deformation of the nation economy and achieve a turn around in the fortunes.
The current global economic depression facing the world
has been described by the world economic and financial experts as the longest
and deepest depression in the post war period. Major industrial developed
countries share in this performance characterized by declining growth rate,
high inflationary pressure, increase in number of unemployment and this trend
had serious adverse effect on the economic of developing countries of which Nigeria is
included.
The present development is quite affecting a substantial
number of Nigeria contemporary business most of them are on the path of
decline, leading to folding up of some companies and many others laying off
their staff and equipment as a result of operational hardship with lack of
ability to expand and decline in sales volume as well as profit.
With the present difficult situation in the Nigeria businss
environment. There is need for businesses to be re-structured for survival in
response to changes that is occurring in the economic environment either a
company decide whether to acquire, merge or sell part or whole of its existing
business thus, given birth to a stronger, bigger and more profitable outfit
that is capable of surviving amidst strong competition.
1.1 HISTORICAL BACKGROUND OF OANDO NIGERIA PLC
Oando Plc commence its business operation as a petroleum
marketing company in Nigeria in 1956 under the name “ESSO West Africa
Incorporated” a subsidiary of Export Corporation of the USA. In 1969, the
company was incorporated under Nigeria
laws as “ESSO standard Nigeria Limited. In 1976, the Nigeria Government brought
ESSO interest and thus, became the 100% owner of the company. The company was
then rename “Unipetrol Nigeria Limited”.
On 1st
March, 1991 the company became a public limited company and was known
as Unipetrol Nigeria Plc in the same year, 60% of the company’s shares was sold
to the Nigeria
public under the first phase the then privatization exercise and the company
was quoted on the Nigeria
stock exchange in February 1992.
In 2000, under the 2nd phase of the Federal
Government of Nigeria’s privatization programme, ocean and soil services
limited became a core investor by acquiring 305 of the Federal Government’s 40%
equity stock in the company, the remaining 10% was sold to the Nigeria public.
The investment in the then Unipetrol Nigeria Plc by Ocean Oil Services Limited
was with support of its International Technical Partners Compania Espanola De
Petroleos (CESPSA) who are currently 2nd largest oil group in Spain and
ranks among the top 10 oil group in Europe. CEPSA is a fully Integrated
Petroleum Company involved in exploration and production, petrochemicals
natural gas, trading, refining, distributing and marketing.
In August 2002, the company acquired Agip Petrol’s 60%
stake of Agip Nigeria Plc, the sale of the 60% interest of Agip Petrol
International was the result of an international bid conducted by Agip petrol
international B.V with the assistance of an international adviser during which
Agip Petroleum International selected to them Unipetrol Nigeria Plc following
the acquisition of Agip Nigeria Plc the company was again i.e. branded to Oando
Plc in 2003 and emerged as Nigeria
2nd largest company in the downstream sector of the oil industry
with 15.64% market share.
1.2 STATEMENT
OF THE GENERAL PROBLEM
Due to the present economic situation of the country
(Nigeria), report indicated that many Nigeria businesses and corporate
organizations have closed up while many more may soon close up, even those that
have survived, it has been a mergical survival and they are operating far below
installed and optimum productive capacities leaving none in doubt that the
situation is bad enough, the following problems are notice.
·
There is need to note the
fact that many of this organization that are depressed situation can either
still be acquired or merged with more prosperous and strong enterprise. In
other word, an alternative to this ugly
economic woe in the country should have been for companies to come
together and continue through merger or acquisition.
·
There is overextension which
tend to make the organization fuzzy and unmanageable. There is manager’s
hubris, overconfidence about synergies form merger and acquisition which
results in overpayment for the target company.
·
There is negative reactions from
company’s employees, bankers, suppliers, customers and other which make the
process by which a company is bought or sold prove difficult, slow and
expensive. Thus, they are not sold as often as they might or should be.
·
Multiple listing service
concept has not been applicable to merger and acquisition due to the need for
confidentiality.
·
There is lack of proper
method, apparatus and techniques for efficiently executing merger and
acquisition transactions without compromising the confidentiality of thee parties
involved without unauthorized release of information.
·
Lack of good recording
keeping of incomes from business undertakings, mostly attributed to illiteracy
and in other cases, a deliberate attempt to evade tax is also a problem.
1.3 OBJECTIVE
OF THE STUDY
No business is embarked upon without a set of objectives
to be accomplished. Merger and acquisition are common features of modern
commercial sense. Hence, the intended objectives of conducting this study are
as follows:
·
To examine the economic reasons
behind above phenomenon and in particular to look into how organization in both
private and public sectors of Nigeria
economy have been surviving under merger and acquisition.
·
To analyze the economic and
social economic of scale associated with operations, costs of company related
to theories and revenue stream. Thus, increasing profit, market share etc by
absorbing a major competitor and increasing its power to set prices.
·
To determine the
effectiveness of merger and acquisition as a strategy for organizational
survival in Nigeria
cooperate bodies.
·
Designed to smooth the
earning results of a company which over the long term smoothes the stock price
of a company, giving conservative investors more confidence in investing in the
company.
·
To analyse the social,
political, economic and fiscal problems encountered by business organization
with regards to the policy of merger and acquisition in Nigeria.
·
To develop ways or means by
which some of the problems which are encountered in the realization of the proceeds
from the use of the proceeds improved.
·
Te study attempt to
investigate its strategic functions for improvement in productivity and
profitability of Oando Nigeria Plc.
·
It is also hope that the
recommendation made if well studied and applied, could help business
organization particularly Oando Nigeria Plc, in attaining her financial goals
efficiently.
1.4 SIGNIFICANCE
OF THE STUDY
The researcher hope that at the completion of this study,
it will contribute immensely to the existing literature on business
organization and Oando Nigeria Plc in particular towards advancement of
knowledge in thee area of business merging, other corporate bodies in Nigeria
will also find the findings and recommendations useful especially those that
are hit by the present economic woe and are considering closing down a the only
option.
Government and its agencies that arte establish to
regulate and approve merger and acquisition proposal will also find this
research work very beneficial especially in enhancing their operations.
This research work also intends to serve as a good
reference material for learning among students of various institution of higher
learning, and other researchers in the area of merger and acquisition in field
of business administration and management which is the bane of economic
development of the country.
1.5 RESEARCH
QUESTION
For this research work to be successful certain question
has to be answer in request to the contributions of merger and acquisition to
organizational survival in Nigeria.
i.
What is the impact of merger
and acquisition to Nigeria economy?
ii.
How can private and public
organizations survived under the merger and acquisition?
iii.
Would merger and acquisition
provide social economic of scale?
iv.
Does merger and acquisition
solve the depressed situation of economic woe in Nigeria?
v.
Can merger and acquisition
add significant value of the firm’s shares?
1.6 STATEMENT
OF HYPOTHESIS
“According to Egejule and Ogwo (1990). Hypothesis is a
tentative and testable explanation usually in a declarative form of the
relationship between variables either specific or general.
Ho That
merger and acquisition does not bring about improvement in market performance.
Hi That
merger and acquisition bring about improvement in market performance.
Ho That
merger and acquisition does not lead to increase in profitability of the
combined firms.
H2 Tat
merger and acquisition lead to increase in profitability of the combined firms.
1.7 SCOPE
AND LIMITATION OF THE STUDY
To understand a research project of this nature, the
scope is normally defined with respect to geographical and time dimension. This
research work is concerned with the he general effect of merger and acquisition
as strategy for organizational survival with respect to Oando in Nigeria Plc. 2007
-2008.
It is a common knowledge that empirical studies in
business organization yielded results which have to be taken with the
proverbial “pinch of salt” as a result of poor data base. In this regards, the
difficulties experiences is ranging from.
·
Some of the organizations
that consummated merger and acquisition are not willing to release such
information saying that such information are classified document.
·
The research is limited to
the nature of te topic itself, it is so broad.
·
The research is constraints
of non-availability of all relevant data and non-possibility of studying all
consummated mergers and acquisition in Nigeria.
·
Financial constraint, due to
nature and age, the researcher faced with the high cost of transport to move
from one place to another where data and relevant information related to this
topic could be obtained.
·
Finally, the reluctant and
incorporate attitude of respondents to questions is yet another. Limiting
factor to this research work.
Despite the above mentioned limitations and many other
unmentioned, the information were confidential and the study has been
systematically carried out devoid of any bias and in line with the earlier
stated objectives.
1.8 DEFINITION
OF TERMS
1. Merger and Acquisition (M & A): A merger is an arrangement by which all
the assets and resources of two or more companies are brought together under
the control of one company which is owned jointly by stockholders of the
original companies.
Acquisition
is the whole transfer and control of assets, liabilities, employees, management
technical relationship and expert etc of one corporation to another.
2. Economic of Scale: This refers to the fact that the
combined company can often reduce duplicate operational costs relative to
theoretically, the same revenue strum, thus increasing profit.
3. Synergy: This refers to better use of
complementary resources. (i.e. 2 + 2=5).
4. Risk Diversification: This is the
situation where a company which is in a strong position within its own market
either in terms of cash flows or market share, decides to extends its influence
by acquiring another company usually in a different line of business, result to
a wider product range.
5. WOE: A long trouble confronting
business environment..
6. Cross Selling: A company buying a stock
broker could then sell its products to the broker’s customers, while the broker
can sign up the company’s customers for brokerage accounts.
7. Manager’s Hbris: This refers to
manager’s overconfidence about expected synergies from M & A which results
in overpayment for the target company.
8. Anti-Trust Cycle: Is a regulatory
device that analyze the impact of merger on market and to control monopolistic
situation and other trade restriction activities that lead to adverse
implication for an economy.
9. (NEPD):National Economic Policy and
Development
10. CAMA: Company and Allied Matter Act.