Effect of Merger and Acquisition on Commercial Banks Performance (a Case Study of Intercontinental Bank Plc, Lagos State)
CHAPTER ONE
Objectives of the Study
The main objective of the study is to examine the effect of merger and acquisition on commercial bank performance using Intercontinental Bank plc Lagos State. The specific objectives of the study are to:
- To examine the effect of Merger and Acquisition on Bank performance.
- Identify the effect of Merger and Acquisition on commercial Bank productivity.
CHAPTER TWO
LITERATURE REVIEW
Introduction
The relevance of banks in economics of any nation cannot be over emphasizing. They are the corner stone of the economy of the country. The economics of all market oriented nation depend on the efficient operation of complex and delicately balance system of money and credit backs are indispensible element in these system. They provide a bulk of money supply as well as the primary means of facilitating the flow of credit. Consequently, it is submitted that the economics well being of a nation is a function of advancement and development of her industry (obadan 1997).
Conceptual Framework
Since every organization is embedded in a complex environment. Those who formulate policy for the organizations should be aware of the existence and impact of the various operating environmental challenges.
The key to an organizations success is the ability to make to timely and appropriate adoption to the complex and changing environment.
In defining or re-defining a company mission, strategic managers mostly recognizes and acknowledges the dynamism of operating environment in which such company will operate. These various changes that the operating environment experiences from time to time create uncertainty and risk and also create opportunities for management to exploit the situation for profit objective or whatever their criterion of success
Adeleke (1993) in his book, business policy and strategic opinions that enterprise environment is the totality of force and institution that are external and potentially relevant to the firm, a major fact about the environment is that it does not survive. An organization performance in an environment is matter of the degree of alignment between the organization, environmental opportunities, objectives, policy, strategy structures and management styles and systems.
Concept of Merger and Acquisition
Merger is one of the methods to achieve or to prepare consolidated accounts. The assets of two or more business are amalgamated to provide the group accounts. It is intend for use where the companies have joined together and the shareholders of both companies retain their interest in what is really a joint venture while acquisition as another method could be used to prepare a consolidated accounts.
The holding company effectively take over controls the subsidiary. In such case there will be shareholders in the subsidiary who have no interest in the affairs of the holding company and monitoring interest in the subsidiary requires additional consideration when preparing the group accounts. Both methods are available for preparing group accounts but the most common approach in the United Kingdom is the use of the acquisition method (Mc Namara, 1990).
The International Accounting Standard (IAS) defined business combination as the result of the acquiring of control of one or more enterprises by another enterprises were no party and the indentify as acquiring or acquire.
Statement of Standard Accounting Practice (SSAP 23) did not explicit define either a merger or an acquisition, but the accounting standard committee on exposure draft (ED) on propose revision of the current (SSAP 23) in their own view defined acquisition at the application of resources to obtain ownership or control of another enterprises for the mutual sharing of the risk and reward of the combined enterprises where no party of the combination can be identified as acquiring or acquire.
Moreover, Rutterman (1987) sees merger as a situation where companies agree to pool their interest by an exchange of shares, so that the existing shareholder come together under one entity. While acquisition is the situation where a company acquire and controlling interest to greater than or equal to 50% or ordinary share is another company thereby giving the acquisition company the power to have great influence in the management and policy formulation of the acquired company. Similarly, Feyitimi (1991) defined merger as a situation where two or more separate entities agree to less their individual legal entities and come under one umbrella entity by pooling their management material and labour resources together so as to entry economic benefit while Anounbi (1992), given has opinion that manager is just a combination of two firm(s) another definition by Akamiokor (2003), in his paper” merger and acquisition as including “all business and corporate organization and operational devices and arrangement by which the ownership and management of independently operated properties and business and brought under the control of a single management “ In an acquisition, the acquiring company is usually in administrative convenience and may not be engaged in any operational activities and the acquired companies becomes its subsidiaries (e.g. U.A.C Ltd and its subsidiaries) the holding companies becomes merely becomes the beneficially owners of all or a substantial part of the share in the subsidiaries while the main shareholder of the groups will only have the interest in the holding Company’s most often than not.
To put in another way, a major is a firm of business combination where two or more companies join together with one being voluntarily liquidated by having its interest taken over by the other and its shareholder becoming shareholder in the order enlarged serving company from the aforementioned definitions, the companies and allied matter act (CAMA), 1990, section 590 finally defined merger as an amalgamation of the undertaking one or more companies and one or more bodies corporate while the same section define acquisition as a takeover by one company of sufficient share in another company to give the acquiring company control over the other company.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter explain the research method adopted in study. The methodology includes all the collection of pertinent data and information needed for research work. This chapter includes restatement of hypothesis and research design, population of the study, sampling techniques.
Research Design
The success and failure of this research depends on the degree of facts gather during the data collection period.
As a result, this data collection was not based only on questionnaire but also face-to-face interview with employee and top management personnel of the company. This research focused basically on both primary and secondary sources of data which were used in obtaining relevant information.
Restatement of Research Question And Hypothesis
The following question guided the study:
- What are the effects of Merger and Acquisition on commercial bank performance?
- What are the effects of Merger and Acquisition on commercial bank productivity?
The following hypothesis were formulated and tested:
Ho1: Merger and Acquisition does not have any significant effect on Banks performance.
Hai: Merger and acquisition have significances effect on Banks performance.
Ho2: Merger and Acquisition does not have any significant effect on Bank productivity.
Ha2: Merger and Acquisition have significant effect on Bank productivity.
Population of The Study
Population: this refers to the entire groups of people, events or things of interest that the researcher wishes to investigate.
The population of the study comprised all employee of the organization. Under study A careful look is taken in all sectors of the organization e.g the employees and the directors. In order to get the accurate population size of the establishment. For the purpose of this research work, the obtain which is100.
CHAPTER FOUR
Data Analysis and Interpretation
This chapter will show presentation, analysis and the interpretation of data collected and the finding of the study out of ninety questionnaires that were administered, only seventy were carefully completed and returned.
The data collected were analyzed in percentages. The questionnaire has two sections.
Section A contained five questions which deal with personal data of the respondents and section B contained the rest of the questions.
Background Characteristics of Respondents
Sex Distribution of the Respondents
The table below revealed that 42 (60%) respondents were male while 28 (40%) respondents were female. Overall, male has higher percentage than female in the questionnaire administration exercise. Meanwhile the pie chart below again describes the respondents’ sex distribution.
CHAPTER FIVE
DISCUSSION OF FINDING, CONCLUSION AND RECOMMENDATIONS
Introduction
Discussion of Finding
The first hypothesis stated that merger and acquisition has no significant effect on banks performance, the finding indicated that a significant effect on banks performance do exist. This may be due to the fact that merger and acquisition will enable the banks to achieve it’s set objectives if not properly managed. This research reported a 60% increase in banks performance. The finding was in line Rutterman (1987) sees merger as a situation where companies agree to pool their interest by an exchange of shares, so that the existing shareholder come together under one entity. While acquisition is the situation where a company acquire and controlling interest to greater than or equal to 50% or ordinary share is another company thereby giving the acquisition company the power to have great influence in the management and policy formulation of the acquired company. The first hypothesis stated the area of definition. While the second was that of measurement. The term performance was sometimes confused with productivity. Productivity was ratio depicting the volume of work completed in a given amount of time performance was a broader indicator that would include productivity as well as quality, consistency and other factors.
The second hypothesis stated that merger and acquisition has no effect on banks productivity. The finding indicated that merger and acquisition has effect on banks productivity. This may be the rate at which goods and service are produced by a standard population of workers, Evidence as provided by De-Nicolo (2003) and Caprion (1999) suggested that mergers and acquisitions in the financial system could impact positively on the efficiency of most banks. Overall, some of these studies provide mixed evidence and many fail to show a clear relationship between mergers and acquisitions and performance. Samuel (2010) in a study of recent banking sector reforms and economic growth in Nigeria using ordinary least square regression techniques, established that interest rate margins, parallel market premiums, total banking sector credit to the private sector, inflation rate, size of banking sector capital and cash reserve ratios account for a very high proportion of the variation in economic growth in Nigeria. This shows that there is a strong and positive relationship between economic growth and banking sector reforms in Nigeria.
Okpanachi (2011) concluded that his result showed an enhanced financial performance leading to improved financial efficiency of the banks that engaged in Merger. Adegbagu and Olokoyo (2008) used descriptive research design (Mean and Standard Deviation) and t-test and test of equality mean analytical techniques to study the effect of recapitalization on the bank’s performance on Nigerian banks.
Conclusion
Every commercial bank, is established to achieve certain define objectives. Thus, the success or otherwise of an organization to an extent is usually determine by the effect merger and acquisition on bank performance. Such as Intercontinental bank Plc well transforms into a mega bank that is capable of playing in a global area and handing big ticket transactions which hither to be the exclusive preserve of overseas banks. Drawn from the analysis of finding carried out are the possible and enhanced operating synergies. Based on the premises that produce this fact, the merger and acquisition between banks would bring about more efficient and effective universal banking operation than each bank on its own (without merger).
The resulted operating synergies from the merger and acquisition will generate higher gross income, reduction in interest expenses. Enhanced credit management and other benefits made possible by combining complement and operations.
Since the emerged banks are national corporate citizen, the effect of the merger and acquisition cannot but benefit on the banks social responsibility. The banks well here after carry out their social responsibility in the economy. The assessments of environmental impact i.e economic, political social or technological changes are the genesis of all managerial actions and functions.
Recommendations
Based on the research findings of this study, the following recommendations are given by the researcher to serve as a means of improve on the aspect of effect of merger and acquisition on commercial banks performance:
- The bank should enable corporate productivity
- Consolidation exercise should be given to the workforce in other for them to participate fully on the merger and acquisition exercise for efficient and effective outcome.
- Due deligent provide a solid ground on which the merger company will operate. The due deligent should be encourage in financial human capital and legal basis among other.
- Finally there should be a clear drown organ gram of post merger company more than not conflict of role destroys all the effort and resources expended on the integration programmed, who take what position should be clearly defined and self interest should be exchange for corporate objective and interest this will enhance clear and smooth running of operations.
REFERENCES
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- Amihud, Y., & G. Miller, eds. (1998), Bank Mergers and Acquisitions, Dordrecht/Boston/London: Kluwer Academic.
- Bausch, Ronald. “WSJ M HYPERLINK “http://blogs.wsj.com/deals/2010/11/09/wsj-ma-101-a-guide-to-merger-agreements/”& HYPERLINK “http://blogs.wsj.com/deals/2010/11/09/wsj-ma-101-a-guide-to-merger-agreements/”A 101: A Guide to Merger Agreements”. WSJ Deal Journal.
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