merger and acquisition as a growth … alozie richard.… · 4.3 responses to the questionnaire...

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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

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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

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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

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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

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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.

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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.

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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 chi- square 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 - - - - - - - - - - iii

Approval page - - - - - - - - - - iv

Dedication - - - - - - - - - v

Acknowledgements - - - - - - - - vi

Abstract - - - - - - - - - - vii

List of tables - - - - - - - - - - xi

List of figures - - - - - - - - - - xii

CHAPTER ONE

Introduction - - - - - - - - - 1

1.1 Background of the study - - - - - - - 1

1.2 Statement of the problem - - - - - - - 4

1.3 Objectives of the study - - - - - - - 5

1.4 Research questions - - - - - - - - 6

1.5 Research hypothesis - - - - - - - - 6

1.6 Limitation of the study - - - - - - - 7

1.7 Significance of the study - - - - - - - 7

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1.8 Definition of terms - - - - - - - - 8

References

CHAPTER TWO

Review of the related literature - - - - - - 11

2.1 An overview of merger and acquisition - - - - - 11

2.2 Historical Development of Mergers and Acquisitions

in Nigeria - - - - - - - - - 14

2.3 Types of merger and acquisition - - - - - - 16

2.4 Reasons for merger and acquisition - - - - - - 18

2.5 Regulatory authorities in merger and acquisition- - - - - 21

2.6 Facilitators in merger and acquisition - - - - - - 24

2.7 Basic steps to ensure legally consummated

merger and acquisition - - - - - - - 25

2.8 Benefits of merger and acquisition - - - - - - 26

2.9 Why merger and acquisition fail - - - - - - 27

2.10 Effective strategies for merger and acquisition - - - - 29

References

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CHAPTER THREE

Research methodology - - - - - - - 34

3.1 Research design - - - - - - - - 34

3.2 Population and sample size determination - - - - - 35

3.3 Sources of data - - - - - - - - 37

3.4 Description of instrument for primary data

Collection - - - - - - - - - 37

3.5 Method of data presentation and analysis - - - - - 38

3.6 Statistical tool for the hypothesis testing - - - - - 38

3.7 The decision rule - - - - - - - - 39

References

CHAPTER FOUR

Data presentation, analysis and interpretation- - - - - 41

4.1 Introduction - - - - - - - - - 41

4.2 Presentation and analysis of data - - - - - - 42

4.3 Responses to the questionnaire items and test of

Hypothesis - - - - - - - - - 66

4.4 Decision rule - - - - - - - - - 69

CHAPTER FIVE

Summary of findings, conclusion and

Recommendations - - - - - - - - 77

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5.1 Introduction - - - - - - - - - 77

5.2 The summary of findings - - - - - - - 77

5.3 Conclusion - - - - - - - - - 78

5.4 Recommendation - - - - - - - - 79

5.5 Area For Further Study - - - - - - - 80

Bibliography

Appendix: Introductory letter to the questionnaire item and the questionnaire.

LIST OF TABLES

TABLE TITLE

4.2 Financial report of NBC Plc before the acquisition of Nigerian Soft Drink - 36

4.3 After the acquisition of NSD Plc by NBC Plc in 1987 - - - 36

4.4 Financial report of John Holt Plc before the acquisition of Ogbemudia Farms 39

4.5 After the acquisition of Ogbemudia Farms by John Holt plc in 1985 - 39

4.6 Financial report of Diamond bank plc before the merger and acquisition - 42

4.7 After the merger of Diamond bank plc with Lion bank plc and African

International bank plc in 2005 - - - - - - 43

4.8 Financial report of UBA plc before the merger and acquisition - - 46

4.9 Post merger of United Bank for Africa plc with Standard Trust Bank plc

and Continental Trust Bank plc in 2005 - - - - - 47

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4.10 Educational qualification - - - - - - - 54

4.11 Length of service - - - - - - - - 55

4.12 Position of staff - - - - - - - - 56

4.13 Distribution of respondents according to the adoption of merger and

Acquisition in their Organization - - - - - - 56

4.14 Distribution of respondents according to the profit growth of merger and

Acquisition of their Organization - - - - - - 57

4.15 Distribution according to the contribution of merger and acquisition to the

Structural growth and expansion of their organization - - - 59

4.16 Distribution according to the management desired goal and objective

Of the merger and acquisition - - - - - - 62

4.17 Distribution according to the level of impact of the merger and acquisition

On their organization - - - - - - - 64

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LIST OF FIGURES

FIGURE TITLE

4.2 Bar chart illustration of the profit growth of the NBC plc before the acquisition

In 1987 - - - - - - - - - 37

4.3 Bar chart illustration of the profit growth after the acquisition of NSD plc

by the NBC plc after the acquisition in 1987 - - - - 38

4.4 Bar chart representation of the profit growth of John Holt plc before the

Acquisition in 1985 - - - - - - - - 40

4.5 Bar chart illustrating the profit growth of John Holt after the acquisition of

Ogbemudia Farms in 1985 - - - - - - - 441

4.6 The bar chart illustration of the profit growth of Diamond Bank plc before the

Merger - - - - - - - - - 44

4.7 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 - - 45

4.8 Bar chart representation of the profit growth of UBA plc before the merger - 48

4.9 Bar chart representation of the profit growth of UBA plc with

Standard Trust Bank plc and Continental Trust bank plc in 2005 - - 49

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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

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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

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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.

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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 RESEARCH QUESTIONS

i. 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?

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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.

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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.

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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 ).

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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 Banking Industry: Issues and Challengies” CBN Bullion,

Vol. 30 No. 3.

Hermes, N. and Robert, L. (1996) Financial Development and Economic Growth, New York: Rutledge publishers.

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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

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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

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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

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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.

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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

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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

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(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.

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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:-

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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.

2.8 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.

33

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

34

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

35

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).

36

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.

37

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.

38

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.

39

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

Ugwuonah, Onodugo and Ebinne (2010), defines research design as the plan or blue-

print 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.

40

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.

41

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

42

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

43

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.

44

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.

45

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.

46

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


47

Figure 4.2: Bar chart representation of the above information on the profit growth of the

organization before the acquisition.

Before the Acquisition

48

Figure 4.3: Post Acquisition

49

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


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


50

Figure 4.4: Bar Chart Representation Of Profit Growth Of JOHN HOLT PLC, According To

The Above Information.

Pre Merger and Acquisition

51

Figure 4.5 Bar Chart Representation Of Profit Growth Of JOHN HOLT PLC, According To

The Above Information.

Post Merger and Acquisition

52

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

(NM)

2002

(NM)

2003

(NM)

2004

(NM)

Net Operating

Income

7,533,145 6,073,164 7,364,164 12,153,812

Operating

Expenses

4,806,417 5,751,861 5,892,784 7,876,222

Profit Before

Taxation

1,945,994 317,337 1,161,746 3,522,317

Taxation 467,817 172,264 328,248 995,765

Profit After

Taxation

1,478,175 345,849 833,498 2,526,552

Source: Published annual report and accounts

53

Table 4.7: After the Merger of Diamond Bank with Lion Bank Plc And

African International Bank Plc.

Years 2006

(NM)

2007

(NM)

2008

(NM)

2009

(NM)

Net Operating

Income

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

Taxation

4,110,524 8,792,775 15,059,114 8,343,738

Profit After Taxation 3,321,125 6,930,754 11,822,011 6,931,127

Source: Published annual report and accounts.

54

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

55

Figure 4.7: Post Merger of Diamond Bank PLC with Lion Bank plc and

African International Bank.

56

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 2001

(NM)

2002

(NM)

2003

(NM)

2004

(NM)

Gross Earnings 22,112,000 23,720,000 24,510,000 26,089,000

Profit Before

Taxation

2,238,000 4,816,000 6,010,000 6,520,000

Taxation 877,000 1,827,000 1,485,000 1,899,000

Profit After

Taxation

1,361,000 2,989,000 4,525,000 4,921,000


57

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

(NM)

2007

(NM)

2008

(NM)

2009

(NM)

Gross Earning 90,447,000 109,512,000 169,581,000 198,149,000

Profit Before

Taxation

12,811,000 25,364,000 48,029,000 -

Taxation 1,261,000 3,923,000 7,204,000 -

Profit After

Taxation

11,550,000 21,441,000 40,825,000 72,370,000


58

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.

59

Figure 4.9: Post Merger / Acquisition of United Bank PLC with Standard Trust Bank Plc

and Continental Trust Bank.

60

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, club-

soda, 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.

61

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 fire-

fighting 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.

62

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.

63

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.

64

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.

65


How long have you been in your company?

Table 4.11: Distribution according to Length of Service.

Option in

Years

No. of

Response

Percentage Degree

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


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.

66


What is your position?

Table 4.12: Distribution according to their Position

Options No. of

Responses

Percentage Degree

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.


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


67

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


Hi: Mergers and Acquisitions do have significant effect on the profit growth of the


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.


Yes 32 88.9% 320O

No 4 11.1% 40O

Total 36 100% 360o


68

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 E (0-E)2 (0-E)2

E

Yes 32 18 196 10.9

No 4 18 196 10.9


X2 = ∑ (O-E)2

E = 21.8

69

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.


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?

70


questionnaire item.


Yes 29 80.6% 290.20

No 7 19.4% 69.80

Total 36 100% 3600


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


71



E

Yes 29 18 121 6.7

No 7 18 121 6.7


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.

72


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?


questionnaire item.


Yes 31 86.1 3100

No 5 13.9 500

Total 36 100% 360o


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.

73

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




E

Yes 31 18 169 9.4

No 5 18 169 9.4


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

74

(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

branches 7 19.4%

Increase in Market share 9 25%

Improved workforce 3 8.3%

Increase in product line 2 5.6%

Economy of scale 6 16.7%

Reduction in Competition 9 25%

Total 36 100%


75

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.

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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.

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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.

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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)

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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 ( )

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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 ( )

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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 ( )

merger and acquisition as a growth … alozie richard.… · 4.3 responses to the questionnaire...

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