THE ROLE OF MERGERS AND ACQUISITIONS AS A SURVIVAL TOOL FOR ORGANIZATIONS IN NIGERIA
CHAPTER ONEINTRODUCTION 1.0 BACKGROUND OF THE STUDY
The increase in the 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 rises, the emotion of international creditworthiness 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 a need for national economic reform in which the federal government eventually came up with the Structural Adjustment Programme (SAP) in 1988 as a strategy to end the deformation of the national economy and achieve a turnaround 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 the number of unemployment and this trend had serious adverse effects on the economics 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 business 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 commences 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 renamed “Unipetrol Nigeria Limited”.
On 1st March 1991, the company became a public limited company and was known as Unipetrol Nigeria Plc in the same year, 60% of the company’s shares were 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 program, 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 the support of its International Technical Partners Compania Espanola De Petroleos (CESPSA) who are currently the 2nd largest oil group in Spain and ranks among the top 10 oil group in Europe. CEPSA is a fully Integrated Petroleum Company involved in exploration and production, petrochemicals natural gas, trading, refining, distributing and marketing.
In August 2002, the company acquired Agip Petrol’s 60% stake of Agip Nigeria Plc, the sale of the 60% interest of Agip Petrol International was the result of an international bid conducted by Agip petrol international B.V with the assistance of an international adviser during which Agip Petroleum International selected to them Unipetrol Nigeria Plc following the acquisition of Agip Nigeria Plc the company was again i.e. branded to Oando Plc in 2003 and emerged as Nigeria 2nd largest company in the downstream sector of the oil industry with 15.64% market share.
1.2 STATEMENT OF THE GENERAL PROBLEM Due to the present economic situation of the country (Nigeria), report indicated that many Nigeria businesses and corporate organizations have closed up while many more may soon close up, even those that have survived, it has been a magical 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 a need to note the fact that many of this organization that is a depressing situation can either still be acquired or merged with the more prosperous and strong enterprise. In another word, an alternative to this ugly economic woe in the country should have been for companies to come together and continue through mergers or acquisitions. There is overextension which tends to make the organization fuzzy and unmanageable. There is a manager’s hubris, overconfidence about synergies form merger and acquisition which results in overpayment for the target company. There are negative reactions from the company’s employees, bankers, suppliers, customers and others 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 a lack of proper method, apparatus, and techniques for efficiently executing merger and acquisition transactions without compromising the confidentiality of the parties involved without the 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 the above phenomenon and in particular to look into how the organization in both the private and public sectors of Nigeria economy has 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 smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. To analyze the social, political, economic and fiscal problems encountered by business organizations 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 attempts to investigate its strategic functions for improvement in productivity and profitability of Oando Nigeria Plc. It is also hoped that the recommendation made if well studied and applied, could help business organizations particularly Oando Nigeria Plc, in attaining her financial goals efficiently.
1.4 SIGNIFICANCE OF THE STUDY The researcher hopes 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 the 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.
The government and its agencies that are established to regulate and approve merger and acquisition proposals will also find this research work very beneficial especially in enhancing their operations. This research work also intends to serve as good reference material for learning among students of various institutions of higher learning, and other researchers in the area of merger and acquisition in the 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 answered in request to the contributions of merger and acquisition to organizational survival in Nigeria.
What is the impact of merger and acquisition on Nigeria's economy? How can private and public organizations survive under the merger and acquisition? Would merger and acquisition provide social economic of scale? Do mergers and acquisitions solve the depressed situation of economic woe in Nigeria? Can merger and acquisition add significant value to the firm’s shares?
1.6 STATEMENT OF HYPOTHESIS “According to Egejule and Ogwo (1990). The 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 do not bring about improvement in market performance. Hi, That merger and acquisition bring about improvement in market performance. Ho, That merger and acquisition do not lead to an increase in the profitability of the combined firms. H2 Tat merger and acquisition lead to an increase in the 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 dimensions. This research work is concerned with the general effect of merger and acquisition as a strategy for organizational survival with respect to Oando in Nigeria Plc. 2007 -2008.
It is common knowledge that empirical studies in business organization yielded results that have to be taken with the proverbial “pinch of salt” as a result of the poor database. In this regard, the difficulties experiences are ranging from.
Some of the organizations that consummated mergers and acquisitions are not willing to release such information saying that such information is classified document. The research is limited to the nature of the topic itself, it is so broad. The research is constrained by the non-availability of all relevant data and the non-possibility of studying all consummated mergers and acquisitions 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 was confidential and the study has been systematically carried out devoid of any bias and in line with the earlier stated objectives.
1.8 DEFINITION OF TERMS 1. Merger and Acquisition (M & A): A merger is an arrangement by which all the assets and resources of two or more companies are brought together under the control of one company which is owned jointly by stockholders of the original companies.
The 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 that is in a strong position within its own market either in terms of cash flows or market share, decides to extends its influence by acquiring another company usually in a different line of business, result to a wider product range. 5. WOE: A long trouble confronting the business environment. 6. Cross-Selling: A company buying a stockbroker could then sell its products to the broker’s customers, while the broker can sign up for the company’s customers for brokerage accounts. 7. Manager’s Hybris: This refers to the 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 analyzes the impact of the merger on the market and to control the 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..