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THE ROLE OF
MERGERS AND ACQUISITIONS AS A SURVIVAL TOOL FOR ORGANIZATIONS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
The increase
in oil boom in the 70s 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 companys 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 (CEPSA) 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 Petrols 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 managers hubris, overconfidence about synergies from merger and acquisition
which results in overpayment for the target company.
There is
negative reactions from companys 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.
What is the
impact of merger and acquisition to Nigeria economy?
How can
private and public organizations survived under the merger and acquisition?
Would merger
and acquisition provide social economic of scale?
Does merger
and acquisition solve the depressed situation of economic woe in Nigeria?
Can merger
and acquisition add significant value of the firm’s shares?
1.6 STATEMENT OF HYPOTHESIS
According to
Egbejule 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 database. 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):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: long trouble confronting business
environment..
6. Cross
Selling: A company buying a stock broker could then sell its products to the
brokers customers, while the broker can sign up the company’s customers for
brokerage accounts.
7. Managers 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.
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