abstract
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Simply put
when organizations have no chance of survival they give themselves a last
chance by merging or by being acquired, though the ultimate goal of every
businesses in today’s world is to grow or be face with liquidation.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">In any
developed countries like Nigeria, the ability of banking industry to play its significantrole
has periodically been punctuated by its vulnerability to systemic distress and
macro-economic volatility, thereby making policy fine tuning inevitable and
Under the goal of modern economic development, one of the important ways of
enterprise restructuring is the use of M&A to implement.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Mergers and
acquisitions which are sometimes shortened as M&As serves as an important
part of corporate restructuring. The major underlying concept behind mergers
and acquisitions is that two companies together are of more value than those
two companies when they are separate entities. It basically deals with the
consolidation of two companies. Therefore, the full understanding of mergers
and acquisitions is of great relevance in today’s world where all print media
almost every day tell stories of such happening in places around the globe.
Some business where mergers and acquisitions take place includes finance, banking,
pharmaceuticals, chemicals, oil, telecommunications, etc.
Globally, mergers and acquisitions
are viewed as one of the most efficient ways to turn vision into practice.
However, in order to make such organization strategy perfect and realizable it
must deliver the desired results - reduced costs, increased market share, mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">taxation,
widen geographical areas,
implementation of financial plans in the local and international market in
order to maximizes the value of corporate investment mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">and among
other factor.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Tracing back
to the recent banking reforms introduced by CBN in 2004, prompting regulatory
induced restructuring and engendered the realignment of banks and banking
groups into merger of some, coupled with the acquisition of others, all this
reforms was arguably setup to ensure a sound, responsive, competitive and
transparent banking system suited to meet the demands of the Nigerian economy
and the rising challenges of globalisation.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">The only
sole regulatory body on financial and banking matters also known as The Central
Bank of Nigeria (CBN) setup a recapitalization and consolidation exercise in
the banking sector under the leadership of former governor of CBN (Professor
Charles Soludo). He encourages all banks in Nigeria to increase their paid-up
capital through public offers or corporate restructuring process (mergers and
acquisition) with the hope of eradicating the unnecessary expansion, volatility
constraints betweendeposit and lending rates coupled with other challenges
faced by the banks. Hence, this made some of the deposit money banks to resort
to Merger and Acquisition as a survival strategy.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">The reasonable
logic behind any form of corporate merger is the synergy effect; which says two
is better than one. Companies are of the affirmative that by either merging or
acquiring another organisation, the performance would be better than being a
single entity. This are attributed to the fact that shareholder value would
effectively be increase to the shareholder satisfaction (Sharma, 2009).
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">A merger
serves as a strategy of joining two businesses. Basicallya merger is said to
occur when two companies join or come together to form one single entity but
with a new name.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">While, the
word acquisition refers to a situation where one firm acquires another and the
latter ceases to exist’ as a company.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Initially,
in the past decades M&A were merely financial transactions aiming to
control undervalued assets and the target was an industry or business very
different from the acquirer’s core business. Cash flows were merely sufficient
for debt repayment which was the main goal of some companies’ liquidity policy.
Hence making mergers and acquisitions different and difficult in recent times.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">The ongoing
banking system reformsportray the fundamental restructuring needed to address
the structural and operational problems of the system in order to create a
strong and credible banking sector which will play active roles in the Nigerian
economy.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">In today’s
changing banking world, the world seems increasingly closer connection and
communication between, growing social needswhich constantly stimulate the
market competition, corporate firms are face with the upsurge pressure and
competition, the urge and need to make a series of achievable strategic
decision-making in order to guarantee its market position, coupled with the
need to expand and pursuit of interest, and finally theneed to ensure that
correct financial decision are taken.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">M &A
decisions are critical to the success of any corporations and their managers.
Many corporate organisation find out that the best way to get ahead of
competitions from other firms is to expand ownership boundaries through mergers
and acquisitions. To others, separating the public ownership of a subsidiary or
business segment create rooms for more advantages. Theoretically, M&A
create synergies, profitable economies of scale, expand operations and reduce
costs.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Investors are
of the expectation that for mergers to deliver it needs to enhanced market
power, it is no more a secret that plenty of mergers do not work. In theory, Merger
and acquisition is great, but practically, things can go awry. Various
empirical results have greatly revealed that most failed mergers were
disappointed, where the motivations that drive mergers flawed and efficiencies
from such economics of scale prove elusive and uncontrollable.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Mergers and
acquisitions are versatile growth tools of any healthy economy and importantly,
it is the primary way that most companies are able to provide returns to owners
and investors.’ Moreover, they serve as powerful and great tools employed by
company of all sizes and in all industries.
In order to ascertain if the activities of merger and
acquisition between the corporate organisation affect the ability of this corporate
financial performance and it ability to meet it short term obligation, it is necessary
for us to evaluate the impact of firm’s liquidity, profitability and solvency.
Despite the huge success of many mergers between
corporate firms in Nigeria, many acquirers-perhaps most-leave huge amounts of
value on the table in every deal, these companies continue to stumble in three
broad areas of post-merger integration:
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">
Firstly, most corporate organisation fail to define
clearly and evidently the deal's primary sources of value and its key risks,
which subsequently leads to not setting a clear priorities for integration,
although some acquirers seem to expect the target company's people to integrate
themselves, while others do have an integration program office, but they don't
get it up and running until the deal closes. Still others mismanage the
transition to line management when the integration is supposedly complete, or
fail to embed the synergy targets in the business unit's budget.
mso-ascii-theme-font:major-latin;mso-hansi-theme-font:major-latin">Although
extensive number of research work have already been carried out on the effects
of merger and acquisition and financial performance, the convention that exists
is that certain research work with respect to merger and acquisition and it
impacts on financial performance during pro-merger era still requires further
exploration.
mso-ascii-theme-font:major-latin;mso-fareast-font-family:"Times New Roman";
mso-hansi-theme-font:major-latin">The major objectives of this research thesis
shall be to evaluate the role of merger and acquisition on financial
performance in the banking industry taking into recognition other macro other
macro objectives which are to evaluate the efficacy of mergers and acquisitions
in the Nigerian Banking industry and mso-hansi-theme-font:major-latin">to establish various means of exploring the
relationship between the human factor and post-acquisition performance in the
banking industry. "Times New Roman";mso-hansi-theme-font:major-latin">
"Times New Roman";mso-hansi-theme-font:major-latin;mso-bidi-font-family:Arial">During
the recapitalization period, several numbers of banks merger take place,
forcing some banks to wind up as a result of not being able to meet up to
target.
"Times New Roman";mso-hansi-theme-font:major-latin;mso-bidi-font-family:Arial">One
could have imagined the unexpected merger between the Standard Trust Bank and
United Bank for Africa, although the merger was fueled up due to the urge to be
a major player in post consolidation era and in order to meet the December 31
2005 deadline set by the CBN as a means of regulating the banking industry.
mso-hansi-theme-font:major-latin">
"Times New Roman";mso-hansi-theme-font:major-latin;mso-bidi-font-family:Arial">For
the purpose of carrying out a detailed analysis of this research work, the
research shall concentrate much attention and focus on, the Banking sector with
reference to the merger which occurs between Standard Trust Bank (STB) and
United Bank of Africa (UBA).
"Times New Roman";mso-hansi-theme-font:major-latin;mso-bidi-font-family:Arial">
CHAPTER ONE
INTRODUCTION
1.1.BACKGROUND OF THE STUDY
Simply put when organizations have no chance of survival they give themselves a last chance by merging or by being acquired, though the ultimate goal of every businesses in today’s world is to grow or be face with liquidation.
In any developed countries like Nigeria, the ability of banking industry to play its significantrole has periodically been punctuated by its vulnerability to systemic distress and macro-economic volatility, thereby making policy fine tuning inevitable and Under the goal of modern economic development, one of the important ways of enterprise restructuring is the use of M&A to implement.
Mergers and acquisitions which are sometimes shortened as M&As serves as an important part of corporate restructuring. The major underlying concept behind mergers and acquisitions is that two companies together are of more value than those two companies when they are separate entities. It basically deals with the consolidation of two companies. Therefore, the full understanding of mergers and acquisitions is of great relevance in today’s world where all print media almost every day tell stories of such happening in places around the globe. Some business where mergers and acquisitions take place includes finance, banking, pharmaceuticals, chemicals, oil, telecommunications, etc.
Globally, mergers and acquisitions are viewed as one of the most efficient ways to turn vision into practice. However, in order to make such organization strategy perfect and realizable it must deliver the desired results - reduced costs, increased market share, taxation, widen geographical areas, implementation of financial plans in the local and international market in order to maximizes the value of corporate investmentand among other factor.
Tracing back to the recent banking reforms introduced by CBN in 2004, prompting regulatory induced restructuring and engendered the realignment of banks and banking groups into merger of some, coupled with the acquisition of others, all this reforms was arguably setup to ensure a sound, responsive, competitive and transparent banking system suited to meet the demands of the Nigerian economy and the rising challenges of globalisation.
The only sole regulatory body on financial and banking matters also known as The Central Bank of Nigeria (CBN) setup a recapitalization and consolidation exercise in the banking sector under the leadership of former governor of CBN (Professor Charles Soludo). He encourages all banks in Nigeria to increase their paid-up capital through public offers or corporate restructuring process (mergers and acquisition) with the hope of eradicating the unnecessary expansion, volatility constraints betweendeposit and lending rates coupled with other challenges faced by the banks. Hence, this made some of the deposit money banks to resort to Merger and Acquisition as a survival strategy.
The reasonable logic behind any form of corporate merger is the synergy effect; which says two is better than one. Companies are of the affirmative that by either merging or acquiring another organisation, the performance would be better than being a single entity. This are attributed to the fact that shareholder value would effectively be increase to the shareholder satisfaction (Sharma, 2009).
A merger serves as a strategy of joining two businesses. Basicallya merger is said to occur when two companies join or come together to form one single entity but with a new name.
While, the word acquisition refers to a situation where one firm acquires another and the latter ceases to exist’ as a company.
Initially, in the past decades M&A were merely financial transactions aiming to control undervalued assets and the target was an industry or business very different from the acquirer’s core business. Cash flows were merely sufficient for debt repayment which was the main goal of some companies’ liquidity policy. Hence making mergers and acquisitions different and difficult in recent times.
The ongoing banking system reformsportray the fundamental restructuring needed to address the structural and operational problems of the system in order to create a strong and credible banking sector which will play active roles in the Nigerian economy.
In today’s changing banking world, the world seems increasingly closer connection and communication between, growing social needswhich constantly stimulate the market competition, corporate firms are face with the upsurge pressure and competition, the urge and need to make a series of achievable strategic decision-making in order to guarantee its market position, coupled with the need to expand and pursuit of interest, and finally theneed to ensure that correct financial decision are taken.
M &A decisions are critical to the success of any corporations and their managers. Many corporate organisation find out that the best way to get ahead of competitions from other firms is to expand ownership boundaries through mergers and acquisitions. To others, separating the public ownership of a subsidiary or business segment create rooms for more advantages. Theoretically, M&A create synergies, profitable economies of scale, expand operations and reduce costs.
Investors are of the expectation that for mergers to deliver it needs to enhanced market power, it is no more a secret that plenty of mergers do not work. In theory, Merger and acquisition is great, but practically, things can go awry. Various empirical results have greatly revealed that most failed mergers were disappointed, where the motivations that drive mergers flawed and efficiencies from such economics of scale prove elusive and uncontrollable.
Mergers and acquisitions are versatile growth tools of any healthy economy and importantly, it is the primary way that most companies are able to provide returns to owners and investors.’ Moreover, they serve as powerful and great tools employed by company of all sizes and in all industries.
However, the notion surrounding most corporate organisation undertaking different strategies of merger and acquisition is their efforts to improve financial performance and by so doing increase returns. Financial performance is a key element to the success of any organization as it clearly indicates the financial health of companies in the market and the performance when compared to other players in the industry. Mergers and Acquisitions strategy have mostly been undertaken with efforts to improve organization performance due to the benefits accrued to it, and this is considered mainly asfinancial management strategy. Merger and acquisition are considered by management as a strategic financial tools used to reduce costs and expenses and maximize shareholder value.
Various studies about Merger and acquisition performance is still patchy and compressed which clearly showsunending gaps waiting to be filled or adjusted, e.g. the aspect of ignored soft issued where weak corporate culture and unnecessary management system which consistently increased the need for a better management practices during the post-merger and acquisition, in spite of their popularity and growth.
Financial performance refers to the measure used to determine of how well a firm can use it assets from its primary mode of business in order to generate revenues. Furthermore, Financial Performance is an essentialtools used as a measure of an organizations financial health over a given period of time, it is also used to compare similar firms across the same industry and to compare industries or sectors in aggregation.
In M&A, financial performance of firms can be determined by evaluating the profitability, liquidity and solvency of such organisations. Profitability refers to the extent in which a company has being efficient in its operations or gauges a company‟s operating success over a given period of time.
For the purpose of this study, various measures of profitability would also be considered some of which includes Return on Asset (ROA), Return on Capital Employed (ROCE), Net Profit Margin (GPM), Profit after Tax(PAT) and Profit before Tax (PBT), Profit After Tax, Gross earning, and shareholder’s Fund.
Previous studies on the relationship between Merger and Acquisition and Corporate performance create mixed evidence and many has failed to provide clear and empirical relationship between mergers and acquisitions on one hand and financial performance on the other hand.
In view of the above, this study will therefore critically examine concepts of mergers and acquisitions on the corporate performance of banking industry in Nigeria using UBA as a case study.
1.2. STATEMENT OF PROBLEM
According to the formulated motives to merge, it can be expected that the execution of a merger or acquisition is a well-considered decision, with expected benefits accruing to the firms involved as a result. The results of Healy et al. (1992) confirm this expectation and show positive effects on the profitability of the merged companies. Nevertheless, there are also studies, such as the study of Ravenscraft and Scherer (1989), who found a decline in the profitability of acquired firms. The reason for this decline is losing the control due to more complex organizational structures and lessened managerial competence and/or motivation.
In order to ascertain if the activities of merger and acquisition between the corporate organisation affect the ability of this corporate financial performance and it ability to meet it short term obligation, it is necessary for us to evaluate the impact of firm’s liquidity, profitability and solvency.
Despite the huge success of many mergers between corporate firms in Nigeria, many acquirers-perhaps most-leave huge amounts of value on the table in every deal, these companies continue to stumble in three broad areas of post-merger integration:
Firstly, most corporate organisation fail to define clearly and evidently the deal's primary sources of value and its key risks, which subsequently leads to not setting a clear priorities for integration, although some acquirers seem to expect the target company's people to integrate themselves, while others do have an integration program office, but they don't get it up and running until the deal closes. Still others mismanage the transition to line management when the integration is supposedly complete, or fail to embed the synergy targets in the business unit's budget.
Secondly many corporate organizations are little bit too slow to put new organizational structures and leadership in place; as a result of this, talented executives leave for greener pastures. One must not also forget how most of this corporate organization sometimes fails to address cultural matters-the "soft" issues that often determine how people feel about the new environment, resistance to change and poor level of strategic integration planning which subsequently leads to loss of talented and special people drifting away.
Thirdly, the unregulated actions or poorly managed systems migrations on the side of both companies leading to active interference with the base business-for example, multiple (and contradictory) communications with customers, which also leads to soaks up of too much energy and attention, and distracting managers from the core businesses. Some of which later makes most competitors takes advantage of such distraction.
Finally, though report has it that merger and acquisition adds value to shareholders wealth, yet it is noteworthy of saying that M&A also have an adverse effect on corporate performance of banking industry due to nature of the business and the broader industry.
1.3. OBJECTIVES OF THE STUDY
Although extensive number of research work have already been carried out on the effects of merger and acquisition and financial performance, the convention that exists is that certain research work with respect to merger and acquisition and it impacts on financial performance during pro-merger era still requires further exploration.
The major objectives of this research thesis shall be to evaluate the role of merger and acquisition on financial performance in the banking industry taking into recognition other macro other macro objectives which includes the following:
1.Evaluate the efficacy of mergers and acquisitions in the Nigerian Banking industry.
2.Establish various means of exploring the relationship between the human factor and post-acquisition performance in the banking industry.
3.Examine the underlying structural and brand implications affiliated with merger and acquisition in the post consolidation period.
4.Determine the motives behind most corporate merger and acquisition.
5.Carry out investigation on the roles of merger and acquisition on commercial bank performance.
6.Ascertain the extent of relationship that co-exists between increased shareholders fund and profit after tax in the banking industry.
7.Determine the effect of merger and acquisition on return on asset and return on equity of deposit money banks in Nigeria banking industry.
1.4. RESEARCH QUESTION:
The following research questions were asked in the research thesis, providing answers to them will help achieve the objectives of this research study.
This question asked includes the following;
1.Are there any efficacy of mergers and acquisitions in the Nigeria
