Business Merger and Acquisition – Growth, Survival Strategy in Nigerian Economy

BUSINESS MERGER AND ACQUISITION – GROWTH, SURVIVAL STRATEGY IN NIGERIAN ECONOMY

REVIEW OF RELATED LITERATURE

1.1 Merger and acquisition in Nigeria:

Business merger and acquisition is relatively new to the Nigeria business climate. It is a through up of the economic depression in Nigeria in recent times.

In the view of one Mr. F.O Adegbilte (1988:5) business grouping in Nigeria prior to 1973 which was value the indeginization policy in Nigeria was enacted to ensure the participation Nigerians in ownership of business enterprises. Before the indinization policy of 1973, the few companies in Nigeria were faintly business of expatriates such as lever Brothers limited. When the indeginization act(1973) was introduced its requirement was that 40 percent share of all the companies wholly owned by foreigners be sold to Nigeria to ensure its citizen’s participation.

MERGER AND ACQUISITION CASE STUDY

As one would expect, this promoted foreign business separately incorporated in Nigeria to begin to regroup such that came together to form division of one company leading to the emergence of the present day multinational like the UAC Nigeria limited with its multinational ranging from 97 and company, associated industries, limited. Levantis group and the present forge between A.G Levantis and Levantis stores.

When their great merger took place, little noise was made due to the circumstance that led to the merger. Mr. okosun (1987:10) in his options held that a notable new era of merger and acquisition was when lever brother Nigeria limited and Lipton merger, thus bringing to the for all industries and sophistication that characterized business climate in 1985.

The diving motive behind business merger and acquisition are organization growth and profitability which would otherwise be virtually impossible for most participating companies to compelling situation, high incidence of bankrupt and liquidation of companies.

The merger of Akintola Williams and Adetona Isichie is expected to have a tremendous effect on auditing, constancy and financial advisory services delivery in Nigeria fore one, the merger has produced the largest indigenous firm of chartered accountants in Nigeria, by this merger, the firm now has about 33 partners and about 700 professional as well is a national branch network.

According to the management, the aim of the merger was foster greater services delivery to their client and has an increase revenue base with projected rate of 20-25 percent per year.

 

LIST OF COMPANIES UNDER MERGER AND ACQUISITION COMPANIES IN NIGERIA IN RECENT TIMES

S/N           NAMES OF COMPANIES                     STATUS                     NO OF SHARES

001 Akintola Williams and Adetona Isichie Private and private 3,000,000 250,000

002 Sterling product Nigeria plc and smithline beecham Nigeria plc Private and public 368,553,333 453,602,494

003 United insurance company and united Nigeria life insurance company Private and private 250.000 250.000

004 AG Leventis and Co. Nigeria and leventis stores limited Public and public 14,062,500 14,062,500

005 Lever brother Nigeria limited and Lipton Nigeria limited Public and private 87,150,500 15,000,000

006 Nigeria Co. limited and leventis technical limited Public and private 7,560,000 7,560,000

007 Total motors plc and west coast fisheries Public and private 27,000,000 28,640,000

008 JOHN Holt limited and JOHN Holt investment limited Public and public 13,440,00 12,000,000

009 JOHN Holt limited and Bauchi Bottling Co. ltd Public and public 1,230,400 1,230,400

010 Scoa Nigeria limited and Nigeria auto bile Co. limited Public and public 1,208,000 864,000

011 International telecommunication (ITT) and hanin spinning mill limited Private and private 745,975 685,005

012 Nigeria breweries plc (NB PLC) and Schweppes international and diamond breweries limited Public, private and private 1,500,000

396,000 552,830

013 Nigeria match company limited united match company star match company limited, star splints limited Private, private, private, private 2,550,000

1,350,000 3.000.000

2,000,000

014 John holt limited and ogbemudi farms Public and private 7,000,000 2,915,000

Source : Nigeria stock exchange, Onitsha

 

2.2 TYPES / EXAMPLES OF MERGERS AND ACQUISITIONS

Merger and acquisition are regarded as contemporary issue in Nigeria. Many another with diversified backgrounds in the knowledge of merger and acquisition have in the course of their study, categorized them into different types.

Accounting to Scharf, Charles A. (1983). The major t5ype of merger and acquisition that are important in development of large America cum World Corporation are:

(i) Horizontal merger

(ii) Vertical merger

(iii) Conglomerate merger

He goes further to define horizontal merger as the joining of two firms in the same area of business or merger among companies producing the same line of product.

However, the joining of two firms involved in different stages of product of distribution of the same produce in termed vertical merger.

Lisey (1993:308) states that vertical merger could come in two ways, namely: forward vertical or backward vertical merger. A forward merger involve moving toward the market in which the product is sold, an example being the acquisition of a retail gas station by the oil refining companies. A backward merger or acquisition, however involves a firms acquisition of other firms. That supply its input an example being a baking industry acquiring a flour mill industry.

Conglomerate merger, on the other hand, is the external growth through a number of mergers of companies whose business were not related either vertically or horizontally. A typical conglomerate might have operating areas in manufacturing, electronics, insurance and other unrelated businesses.

In different opinion from that of charles, A.S. through a publication of the chartered association of certified accountants (1991:258: merge4r and acquisition are categorized into four namely;

(i) Horizontal merger

(ii) Vertical merger

(iii) Concentric merger and

(iv) Conglomerate merger

The horizontal merger according to the association occurs when one merger with or acquire another in the same industry line. Such mergers cum acquisition are usually based on understanding exploitative economics of scale in production and distribution or to achieve increases in market shares in the concentration industry. Such merger is being adopted by Nigeria bottling company plc.

On the other hand ve4rtical merger occurs when one firm on one hand acquire another with which for further classification the association pointed out that forward integration enable a form to exercise greater control over the distribution of its production over scarce resource and product quality.

Concentric merger and acquisition, says the body, involves two firm which are not in the same line of business but which a4re related through basic technologies, production process or markets. A concentric acquisition involve an out ward move from the firms core activity into a related business with a view of benefiting from economics of scope’’ (that is exploitation of share holders ). The objective of a concentric merger is, therefore to diversify around a common core of strategy resource and activities. Such and acquisition involve two firms or organization that are completely unrelated in their lines of business modern day management often prefers this type of firms to achieve a more stable earning steam, such merger is being adopted by Nigeria bottling company plc.

 

1.2 SUCCESSES AND FAILURES OF MERGER AND ACQUISITION

A number of research work has been carried out in both great British and the United States of America on the relative success of merger and acquisition with a general conclusion as well as specific finding, so observed Thompson (1990:454).

He argued that general conclusion from the study suggest that more than 50 percent of diversification though merger and acquisition strategies are successful, the synergies which were considered to exist prior to acquisition are frequently not realized, there is also an agreement that lidded, who often plays on unwarranted premium.

However, share holder who accept shares in the acquiring company instead of cash together with the existing shareholders in longer term in term of share price appreciation. He further argues that research findings also support the contention that probability gain attributable internal investment in companies are generally much greater than those accusing to acquisition investments.

 

1.3 REASON FOR FAILURE OF MERGER AND ACQUISITIONS

It has earlier been mention that the main reason why mergers and acquisition fail is that they do not generate the synergy which was anticipated of them. The problems are that despite the comparative advantages of divestment (merger), there are many inherent difficulties in dealing with mergers. Identification may be classified into internal problem and external problems.

INTERNAL PROBLEM: these could be objective from director ans senior managers who are attached to a particular operating unit often that ate not for historical reason.

EXTERNAL PROBLEM: most of the problem associated or encountered in term of effective merger and acquisition are external problems. There could be difficulties in finding the mighty buyers and this is intensified with the size of the business and subsidiaries in periods of recession.

According to Rolan and Statters (1983:127). There are other problem such as paper evaluation so as to obtain the realistic value of the firm selling a product whose you cannot tell to a market about of management nightmare.

In support of the view expresses by Ronald and Lattees Thompson (1990) linked to this issue as reality that in many cases the real weakness of the acquisition firm are hidden during the acquisition .

Also not worthy is that key manager who have been responsible for the past growth and success of the company being acquired may choose to have rather than stay with the new conglomerate. When this happens, depending on the success may not be repeatable.

The need for proceeding with contain is been overstressed. Although some changes may have to be implemented quickly, for example, cost reduction in certain area, other will be less argued. This provides an opportunities to lean about the understanding strength and weakness of the new business that may be capitalized on and dealt with respectively.

Finally, introduction of unnecessary rigid new system may not be appropriate for the new business. Where there are different in culture, technology and marking needs, managers in the acquired company should be allowed the necessary freedom to manage the competitive and functional strategy and respond to market pressures.

 

1.4 BENEFITS OF MERGER AND ACQUISITION

Merger and acquisition encourage growth, which is a natural consequence encourage of life. An organization that fails to grow risks stagnation through liquidation and such an organization is said to be manibound and a social liability.

Other benefit of business merger and acquisition includes the following:

(i) Sound goal and objectives may be achieved more speedily.

(ii) The cost of building an organization.

(iii) The firm may be able to use securities in obtaining other companies, which it might not be able to finance the acquisition of equivalent areas and capabilities internally.

(iv) There may be tax advantages.

(v) There may be opportunities to complete the capabilities of other firms.

 

1.5 CONCLUSION

The used of merger and acquisition as a growth strategy by the three selected Nigerian companies had been showed to have contributed to the growth and survival of their firms. For it has been proved that the profitability of the companies were dependent various times. It is also agreed that merger and acquisition are critical to a healthy expansion of business as they involved through successive stages of growth and development.

BUSINESS MERGER AND ACQUISITION – GROWTH, SURVIVAL STRATEGY IN NIGERIAN ECONOMY