THE ROLE OF MERGER AND ACQUISITION ON ORGANIZATIONAL SURVIVAL IN NIGERIA (A CASE STUDY OF OANDO NIG. PLC AND AGIP NIG. PLC, KADUNA ZONAL OFFICES)

BSTRACT

Merger and acquisition has been widely acclaimed by scholars and professionals in business as the most desirable and effective strategy to revive the difficult situations facing Nigeria economic climate. The situation is so terrible that organizations had to turn around and adopt strategy to survive through this turbulent water.  This research work has the objective undertaking to examines, analyze and evaluate the effectiveness of merger and acquisitions as a strategy for organizational survival in Nigeria and investigates whether it can result to economic of scale and increase profitability of the combined firms. To this end, questionnaire were administrated to Oando Nigeria Plc and some few other organizations that merged. The data and information collected were analyzed using simple tables, frequencies and percentages. The findings of this research reveals that merger and acquisitions brings about improve in the productivity of the emerged organizations. The researcher is of the opinion that, based on the findings, the recommendations made if properly followed, it will improve the activities of merger and acquisition for the benefit of the government, proposing organizations and the interested public at large.
TABLE OF CONTENTS

Cover page         –        –        –        –        –        –        –        –        –        i

Title page  –        –        –        –        –        –        –        –        –        –        ii

Declaration         –        –        –        –        –        –        –        –        –        –        iii

Approval page    –        –        –        –        –        –        –        –        –        iv

Dedication –        –        –        –        –        –        –        –        –        –        v

Acknowledgement       –        –        –        –        –        –        –        –        vi

Abstract     –        –        –        –        –        –        –        –        –        –        viii

Table of content –        –        –        –        –        –        –        –        –        ix

CHAPTER ONE – Introduction

1.0    Background of the study      –        –        –        –        –        –        1

1.1    Historical Background of Oando Nigeria Plc  –        –        –        3

1.2    Statement of the general problem –        –        –        –        –        5

1.3    Objective of the study –        –        –        –        –        –        –        6

1.4    Significance of the study      –        –        –        –        –        –        8

1.5    Research question      –        –        –        –        –        –        –        9

1.6    Statement of hypothesis      –        –        –        –        –        –        10

1.7    Scope and limitation of the study  –        –        –        –        –        10

1.8    Definition of terms       –        –        –        –        –        –        –        12

CHAPTER TWO – Review of Related Literature

2.0    Introduction         –        –        –        –        –        –        –        –        14

2.1    Merger and Acquisition definitions         –        –        –        –        –        14

2.2    Types of Merger –        –        –        –        –        –        –        –        16

2.3    Strategies for business survival    –        –        –        –        –        18

2.4    Motive behind merger and acquisition   –        –        –        –        19

2.5    Reason for merger and acquisition preference over

investment in new business generated from scratch       –        –        23

2.6    Procedure for effective merger     –        –        –        –        –        26

2.7    Method of financing merger –        –        –        –        –        –        28

2.8    Merger and acquisition investment banking   –        –        –        31

2.9    Merger and acquisition market place difficulties      –        –        32

2.10  The effect of merger and acquisition     –        –        –        –        35

2.11  Legal issues in M & A –        –        –        –        –        –        –        36

2.12  Regulation of M & A  in Nigeria     –        –        –        –        –        37

2.13  Summary of the review        –        –        –        –        –        –        –        40

CHAPTER THREE

RESEARCH METHODOLOGY

3.0    Introduction-       –        –        –        –        –        –        –        –        42

3.1    Area of study      –        –        –        –        –        –        –        –        42

3.2    Research design         –        –        –        –        –        –        –        –        43

3.3    Research population   –        –        –        –        –        –        –        43

3.4    Sample and sampling technique  –        –        –        –        –        44

3.5    Data collection instruments  –        –        –        –        –        –        44

3.6    Data collection method         –        –        –        –        –        –        –        46

3.7    Validity and reliability of the instrument  –        –        –        –        46

3.8    Administration of research instruments –        –        –        –        47

3.9    Techniques of data analysis (mode)     –        –        –        –        47

CHAPTER FOUR – Presentation and Analysis of Data

4.0    Introduction         –        –        –        –        –        –        –        –        49

4.1    Respondent characteristic and classification –        –        –        49

4.2    Presentation and Analysis of data         –        –        –        –        –        50

4.3    Testing of hypothesis –        –        –        –        –        –        –        58

4.4    Summary of findings   –        –        –        –        –        –        –        60

CHAPTER FIVE – Summary, Conclusion and Recommendation

5.0    Introduction         –        –        –        –        –        –        –        –        62

5.1    Summary            –        –        –        –        –        –        –        –        62

5.2    Conclusion         –        –        –        –        –        –        –        –        –        65

5.3    Recommendations      –        –        –        –        –        –        –        65

Bibliography –     –        –        –        –        –        –        –        –        68

Appendix

CHAPTER ONE

INTRODUCTION

1.0    BACKGROUND OF THE STUDY

The increase in oil boom in the 70’s 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 company’s 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 (CESPSA) 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 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 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 manager’s hubris, overconfidence about synergies form merger and acquisition which results in overpayment for the target company.
• There is negative reactions from company’s 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.

1. What is the impact of merger and acquisition to Nigeria economy?
2. How can private and public organizations survived under the merger and acquisition?

• Would merger and acquisition provide social economic of scale?

1. Does merger and acquisition solve the depressed situation of economic woe in Nigeria?
2. Can merger and acquisition add significant value of the firm’s shares?

1.6    STATEMENT OF HYPOTHESIS

“According to Egejule 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 data base. 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): 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.

1. 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.
2. Synergy: This refers to better use of complementary resources. (i.e. 2 + 2=5).
3. 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.
4. WOE: A long trouble confronting business environment..
5. Cross Selling: A company buying a stock broker could then sell its products to the broker’s customers, while the broker can sign up the company’s customers for brokerage accounts.
6. Manager’s Hbris: This refers to manager’s overconfidence about expected synergies from M & A which results in overpayment for the target company.
7. 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.
8. (NEPD):National Economic Policy and Development

10.    CAMA: Company and Allied Matter Act.