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 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 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