THE EFFECTS OF MERGERS AND ACQUISITION ON FINANCIAL INSTITUTION IN NIGERIA ECONOMY
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The focus of this project is to elucidate evaluation of mergers and acquisition of financial institution on the Nigeria economy. As a matter of fact the importance of merger and acquisition in the survival of a business cannot be overemphasized, therefore its help in enhancing banking efficiency, size and development. This project work was design to find the effect of merger and acquisition in intercontinental bank plc, as well as the effects of mergers and acquisition of banks on the Nigeria economy in which some of the factors that contributed to the growth of economy also analyzed. For comprehensive understanding, this project is presented in five chapters. Chapter one include the introduction, chapter two comprise of the literature review, chapter three contain the research methodology, chapter four contains the result an.
1.1 Background of the Study
In any organization where the business is not flourishing and there are indications of failure, one of the options available to the owner is to re-organize the business so as to close the gaps and streamline avenues for improvement. Re-organize therefore means re-engineering the b business for a better performance in near future as a result of recapitalization policy pronounced by the Central Bank of Nigeria (CBN). The investors decided to consolidate their group activities into one entity in order to meet up with their subsidiary banks. The easiest example at hand is the International Bank Group consolidation.
According to professor Soludo (Former CBN Governor) in his speech (2004) Merger and acquisition should be taker seriously as an instrument for enhancing banking efficiency, size and developmental roles. The last few years have witnessed the creation of the world banking group through mergers and acquisition. The trend has been influenced by factors such as prospect of cost-saving due to economies of scale as well as more efficient allocation of resources, enhanced efficiency in resource allocation and risk reduction arising from improved management. Mergers and acquisitions especially in the banking industry is now a global phenomenon.
Merger and acquisition have been identified as veritable strategic options for enhancing the efficiency of local business globally. This formed part of the communiqué issued at the end of the seminar organized by the Financial Institution Training Center with the theme “Gaining Competitive Advantage: Mergers and Acquisitions Strategic Option”
The participant observed that merger and acquisition were not new in Nigeria as there had been more than 20 successful cases of mergers and acquisitions in the last twelve (12) years, which were motivated from outside the country’s boarders. In light of the foregoing, the motives behind any merger an acquisition are given as follows:
- The need to maximize the opportunities available to a company by replacing its inefficient or incomplete management.
- The need to achieve economies of scale resulting in the combined output of both enterprises.
- The need of the part of management to achieve growth market power for the company.
The earliest known merger experience in Nigeria was between West Africa Soap Company Limited and Van Der Berg limited to form lever Berg Limited in 1926. However, not much merger activities were recorded therefore until the first phase of the indigenization programme in the 1970s which entails the divestment by foreign enterprises or portion of their equity to Nigeria interest.
Most mergers and acquisitions of this era were “in house” arrangement to be found in (UAC) United African Company Nigeria group in which companies that had previously operated independently were brought together as division of (UAC) United of Africa company Nigeria Plc. The first merger between two public quoted company were recorded in 1983. This was the merger between (A.G) A vis Global Leventis stories.
The practices of mergers and acquisitions was not being constrained by regulatory environment but mainly by inherent attitudinal resistance to business mergers, shareholders and employers that had adopted this economic measure as help to recorded great turnover and have become giant and Colossians in economic activity in Nigeria, as shall be revealed later on his study. intercontinental Bank Group through merger and acquisition become a household name in Nigeria that has been successful.
The research intends to find out the effects of merger and acquisition of financial institution on the Nigeria economy through an empirical investigation.
1.2 Statement of the Problem
Owing to the recent #25 billion recapitalization policy instituted by Central Bank of Nigeria (CBN) to all the banks in Nigeria. It becomes imperative to look into mergers and acquisition that will enhance the efficiency of banking industry and make them more globally competitive.
Now this study attempts to raise a number of issues among which are:
- Late or non publication of annual account
- There are problems of weak governance in the banking sector
- Over dependency on public sector deposits
1.3 Research Questions
The following questions will be taking care of in the course of this research work.
- What was the financial position of financial institutions before their merger and acquisition?
- What is the financial stands of the banks after their merger an acquisition?
- What is the position of Nigerian economy before the advert of recapitalization policy by (CBN) Central Bank of Nigeria?
- What are the effects of merger and acquisition of financial institution on the Nigerian economy?
1.4 Purpose of the Study
One of the pedagogical implications of merger and acquisition is to bring about shaping corporate strategy as a means of improving the firms completive position.
Therefore, the study intends to:
- Examine the mergers of financial institutions of the study area.
- Examine the acquisitions of financial institutions of the study area.
- Assess Nigeria economy after the advent of recapitalization policy of (CBN) Central Bank of Nigeria.
- Identify the effect of merger and acquisition of financial institution on the Nigeria economy
- Make recommendations based on the findings.
1.5 Scope of the Study
This study is mainly about the effects of mergers and acquisition of financial institution (Banks) to the Nigerian economy with reference Intercontinental Bank, Access Bank.
1.6 Limitation of the Study
The researcher recognized at this junction some major constraints faced in the course of this study starting from the uncooperative attitude of some respondents that were granted personal interview for fear of loosing their job, that if they give all the information that the researcher needed in term of the financial position and the financial result of the company after they have merged (i.e. profit generated in each financial year end).
The second constraint is the shortage of time for the research. The time given to carryout this research work was very short that the researcher was unable to meet those that are in power (director so as to get more information about the changer in their financial position and the result of each year financial report).
1.7 Significance of the Study
The effects of merger and acquisition of financial institution to the Nigeria economy is the concern of this study, most economist say merger and acquisition is the most efficient and effective option available for consideration banks during recapitalization.
The study will help investor to know the importance of mergers and acquisition.
The study will help the entire public on the shareholding of the merger companies.
The study will help the investors on the appropriate step of instrument to be use in order to improve the share capital and shareholding of the public.
The study also contribute to the body of knowledge in the related areas of study for future researchers.
1.8 Definition of Terms
As a series of transaction where by a person (individual or group individual or a company) acquires control over the asset of a company.
Is the accomplishment of two or more existing company whereby the asset of the merging or combining companies are posted under the control of one company which may be offspring of the poison as it shareholders.