Effects of Merger and Acquisition Policy in Nigeria Banking System. (a Case Study UBA Bauchi Main Branch)
CHAPTER ONE
Objectives of the Study
In a broad framework, the general objective of the study is to examine the effects of merger and acquisition policy in Nigeria banking system The specific objectives of this study were to:
- ascertain the impact of mergers and acquisitions on the liquidity profile of UBA Bauchi main branch in Nigeria.
- examine how mergers and acquisitions adopted by UBA Bauchi main branch impacted on the return on equity of UBA Bauchi main branch.
- evaluate the impact of mergers and acquisitions on the debt/equity profile of UBA Bauchi main branch in Nigeria.
- examine the extent to which earning per share of UBA Bauchi main branch improved as a result of mergers and acquisitions.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Conceptual Framework
Mergers and Acquisitions
Merger can be defined as a combination or fusion of two or more formally independent business units into one organization with a common ownership and management such as in current usage. A merger is a special ease of combination where both merging companies wish to pin together on agreed term. Lot (2003) defined merger as a combination of two companies where only one of them survives and continue its existence or at least continue to exist but in modified term. Acquisition on the hand is a corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to takeover an existing firm’s operations and niche compared to expanding on its own. Acquisition can be either friendly or hostile. Friendly acquisitions occur when the target firm expresses it agreement to be acquired, whereas hostile acquisitions do not have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake. In either case, the acquiring company often offers a premium on the market price of the target company’s shares in order to entice shareholders to sell.
A consolidation is a type of merger which involves the combination of two or more companies whereby an entirely new company is formed. All of the old companies cease to exist and the shares are exchanged for the shares in the new company. Vanhorne (1998) seems to be in agreement with Hampton that “merger is a combination of two or more corporations where only one survives. Firms’ assets and liabilities are left to the new firm.” Ahmed (1989) also viewed merger as a unification of previously separate companies into a single corporation”. He explains that merger occurs when one or two of the combining companies survive.
This is illustrated as follows:
If company X and company Y merged and a new company Z emerges, it is called a merger, but where company Y dies and X survives, it is an acquisition. The argument about identity sprang up in disagreement with Ahmed as Joy (1990) in her write up argued that in merger, the identity of both merging companies’ ceases to exist and the surviving company takes any name as maybe wished by the new owner. Acquisition according to her is a situation where management of independently operating enterprises is brought under the control of a single management.
According to Umari (1998), in merger, take over, amalgamation or acquisition, two or more companies come together by the pulling of their undertakings or resources, that is, material money, goodwill, market, skilled personnel, and technology and so on. Acquisition can also be by buying a controlling interest on the share capital of one of the companies.
From the legal point of view, in section 590 of the Companies and Allied Matters Decree of 1990”, mergers have been described as any amalgamation of the undertakings of any part or whole of the interest of two or more companies or corporate bodies”. Professor Cower (2002:51) reviewed that under amalgamation, merger or takeover, two or more companies are merged either by a consideration of controlling interest in the share capital of one by the other or in the capital of both by a new company. He also stated that mergers and acquisitions are not terms of act with clearly defined and distinguishable legal meaning. They are intervention and can be used interchangeably.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
Research Design is a kind of blue print that guides the researcher in his or her investigation and analysis (Onwumere 2005). The research design adopted for this research is the ex post facto since it relies on historical data. Ex post facto design is a non-experimental research technique in which pre-existing groups are compared on some dependent variables; it is a type of study that can masquerade as a genuine experiment.
This study is designed to use econometrics models in the analysis and is also designed to be both a time serial and cross-sectional study. In view of this and in line with previous studies, this study adopts panel data analysis. Panel data analysis is the most efficient tool to use when the sample is a mixture of time series and cross-sectional data and the structure takes into account the unobservable and constant heterogeneity (Andres and Vallelado, 2008). Hsiao (2003), Klevmarken (1989) and Moulton (1986 and 1987) highlight some merits in the use of panel data as follows: The use of panel data controls for individual heterogeneity. The underlying principle of panel data is the assumption that firms, states or countries are heterogeneous. In time series and cross section analysis, this heterogeneity is not taken care of and this poses a threat because of the risk of obtaining biased results; unlike time series studies which is plagued with multi-collinearity issues, panel data gives more informative data, more variability, less collinearity among the variables, more degrees of freedom and more efficiency; Panel data has the ability to study the dynamics of adjustment because cross-sectional distribution that looks relatively stable conceals a lot of changes. It is again able to measure effects that are difficult to detect in pure cross-sectional or time-series data.
Nature and Sources of Data
The data for this research is from secondary sources, in line with the works of Andres and Vallelado, (2008).The data were handpicked from the annual reports and statements of accounts of banks quoted on the Nigerian Stock Exchange and Fact books of the Nigerian Stock Exchange since they are believed to constitute the most authoritative and accessible documents for our research. These sources are ideal in answering our research questions and to empirically test our research hypothesis. Such annual reports and financial statement of accounts of the various banks are sourced from the banks’ corporate headquarters, the Central Bank of Nigeria (CBN), the Nigerian Stock Exchange (NSE), the Securities and Exchange Commission (SEC) and other relevant bodies. The data needed based on the nature of this research is from 1998 to 2012.
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
Introduction
This chapter presents and tests the hypotheses stated in chapter one, using the techniques of analysis describe in chapter three, which is ordinary least square regression analysis.
Presentation of Data
Table 4.1 shows the value of the model proxies which will be used to calculate the ratios that we shall use in our analysis. From the table, we can see the values of current asset, total debt, net profit after tax, earning per share and shareholders’ equity which is used as the proxy for mergers and acquisitions in this work. These values are handpicked from the annual report of the sampled bank year by year for the period of 15years from 1998 to 2012.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
The findings emanating from the study are as follows:
- Mergers and acquisition has positive and significant effect on the liquidity profile of UBA Bauchi main branch.
- Mergers and acquisition has positive and significant effect on return on equity of UBA Bauchi main branch.
- Mergers and acquisition has positive and insignificant effect on debt/equity ratio of UBA Bauchi main branch.
- Mergers and acquisition has positive and significant effect on earnings per share of UBA Bauchi main branch.
Conclusion of the Study
This research has been able to estimate the effect of mergers and acquisitions on the performance of Nigerian banking industry from 1998-2012. The conclusions based on the findings are as follows;
- The finding of the research is of the conclusion that mergers and acquisitions has positive and significant effect on the liquidity profile of UBA Bauchi main branch.
- The effect of return on equity on mergers and acquisition are positive and significant.
- It was concluded that the debt/equity ratio of the effected banks are positive and significant
- Finally, the finding on earning per share of UBA Bauchi main branch are also positive but not significant
Recommendations of the Study
The following specific recommendations based on the objectives of this study are as follows;
- Government should ensure the stability of operating environment for banks. The liberalization policy should be vigorously pursued to enable banks and business decision makers to work freely within a wider horizon with reasonable degree of certainty about the environment for speedy and more effective decision making.
- In order to discourage unethical practices on the part of the banks and their managements, the Central Bank of Nigeria (CBN) and other regulatory bodies should turn their searchlights on the Nigerian banking industry, so that the megabanks would not begin to perpetuate financial crimes to generate jumbo returns from the enormous funds available to them. And also in order to build and retain public confidence and avoid a run on Nigerian banks, greater transparency and accountability should be firmly embedded as the hallmark of the Nigerian banking system.
- Consolidation of any industry is likely to pose additional challenges arising from integration of processes, IT and culture. In addition, research has shown that two thirds of mergers, world-wide, fail due to inability to integrate personnel and systems as well as due to irreconcilable differences in corporate culture and management, resulting in Board and Management squabbles (CBN, 2006). In view of this, the emergence of mega banks in the post consolidation era is bound to task the skills and competencies of Boards and Managements in improving shareholder values and balance same against other stakeholder interests in a competitive environment. Therefore, in order to ensure that the synergy that the bank consolidation promises, and to mitigate post-consolidation conflicts, adequate steps should be taken to train and retrain the staff and management of all the banks that have scaled the consolidation huddles while the regulatory environment has to be tightened to close all the loopholes that could come up as a result of the increased size of the firms in the industry.
- In the bid to ensure the practice of good corporate governance, which is a system by which corporations are governed and controlled with a view to increasing shareholder value and meeting the expectations of the other stakeholders, the CBN and other regulatory bodies like Security and Exchange Commission, Nigeria Stock Exchange, Nigeria Deposit Insurance Corporation, among others, should not allow any of the banks to have weak corporate governance.
REFERENCES
- Ajayi, M. (2005).Banking sector reforms and bank consolidation: conceptual framework. In: Banking sector reforms and bank consolidation in Nigeria.CBN bullion, Vol. 29, No. 3.April/June.
- Ahmed, M. (1989).Mergers and Acquisition as Alternative Growth Strategy to Nigerian Firms under SAP.Nigeria Institute of Management Seminar, Lagos.
- Anaeto, Emeka. (1998, November 23). Counting the Gains of Corporate Restructuring. Business Times, P. 41.
- Anard J. &singh. H. (1997).“Asset redeployment, acquisition and corporate strategies in declining industries” Strategic Management Journal.Vol. 23. pp. 119-134.
- Ansoff, H. Igor et al (1976).“From Strategic Planning to Strategic Management” Hiley, New York.
- Adesida, S., (2008).‘Stanbic, IBTC Chartered set to unveil new logo’. Daily Sun Online, [internet]. 31 March. Available at: http://www.sunnewsonline.com/webpages/feat ures/moneymarket/2008/mar/3/ monymarket-31-03-2008-003.htm [accessed 2 June 2013].
- Adesida, S., (2008b).‘UBA has acquired 5 failed banks, 38,500 accounts and N7.9b private deposits ––NDIC MD’. Daily Sun Online, [internet]. 29 March. Available at: http://www.sunnewsonline.com/webpages/features/enterprise/2008/mar/29/ent erprise-29-03-2008-002.htm [accessed: 17 June 2013].
- Agbaje, O., (2008). ‘The Banking industry in 2008’.Business Day Online. [internet]. 19 February. Available at:http://www.businessdayonline.com/analysis/backpage/4569.html [accessed 2 June 2013].
- Agusto & Co., 1996. ‘Exchange Rate’. Banking Industry Survey .
- Akhavein, J.D., Berger, A.N., and Humphrey, D.B., (1997). ‘The effects of mega- mergers on efficiency and prices: Evidence from a bank profit function’, Review of Industrial Organization, 12, pp. 95-139.
