IMPLICATION OF MERGERS AND ACQUISITIONS THEIR EFFECTS ON BANKS PERFORMANCE
(A CASE STUDY OF UNITED BANK FOR AFRICA UBA)
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This research work was aimed at determining the implication of mergers and acquisitions their effects on banks performance as regards to United Bank for Africa (UBA). In this study, the objectives of the researcher is to
Find Out the financial implications of mergers and acquisitions in Nigeria commercial bank sector. Whether mergers and acquisitions can solve the problem of financial insolvency. If there is any benefit to be derived from mergers and acquisitions whether survival, growth and benefits (ie profit maximization) commercial banking sector can only be achieved through mergers and acquisitions. Can mergers and acquisitions be a tool for performance evaluation. The researcher was a survey as stated. The instrument used was questionnaire. The data collected was analyzed and tabulated. The result revealed that banking sector in Nigeria could perform well,grow and maximize profit through mergers and acquisitions. Ideological problem may arise in setting organizational goals as a result of the fusion. There are some legal aspect attached to them which is based either on their economic effects or legal states. It also revealed that many shareholders has not knowledge of the impact of mergers and acquisitions. Above all, the researcher gave some recommendations, which would benefit the banking and all other investors if strictly adhered to.
TABLE OF CONTENT
Background of the study
1.1 Statement of problem
1.2 Objectives of the study
1.3 Significant of the study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Scope of the Study
1.7 Limitations of the Study
1.8 Definition of Terms
2.0 Review of Related Literature
2.1 Regulatory Issues in Mergers and Acquisition
2.2 Types of Merger
2.3 The Legal Framework of Mergers
2.4 Reason for Merger and Acquisition
2.5 Mergers and Acquisition and Instrument
2.6 Advantages of Merger and Acquisition
2.7 Disadvantages of Mergers and Acquisition
2.8 Problems of Bank Merger and Acquisition
3.0 Research design and methodology
3.1 An Overview of Research Methodology
3.2 Research Design
3.3 Population of the study and Sample Size
3.4 Sources of Data Collection
3.5 Data Treatment Techniques
3.6 Validity and Reliability of Test
4.0 Data Presentation and Analysis.
4.1 Analysis Presentation
4.2 Test of Hypothesis
5.0 Summary of findings, conclusion and Recommendation.
5.1 Summary of Findings
1.1 BACKGROUND OF THE STUDY
The relevance of banks in the economy of any nation cannot be overemphasized. They are the cornerstones of the economy of a country. The economies of all market-oriented nations depend on the efficient operation of complex and delicately balance systems of money and credit. Banks are an indispensable element in these systems. They provide the bulk of the money supply as well as the primary means of facilitating the flow of credit."
Consequently, it is submitted that the economic well being of a nation is a function of advancement and development of her banking industry (Obadan, 1997).
According to the value increasing school, mergers occur, broadly, because mergers generate ‘synergies’ between the acquirer and the target, and synergies, in turn, increases the value of the firm (Hitt et al., 2001). The theory of efficiency suggests that mergers will only occur when they are expected to generate enough realizable synergies to make the deal beneficial to both parties; it is the symmetric expectations of gains which results in a ‘friendly’ merger being proposed and accepted. If the gain in value to the target was not positive, it is suggested, the target firm’s owners would not sell or submit to the acquisition, and if the gains were negative to the bidders’ owners, the bidder would not complete the deal.
Mergers and acquisitions (M&As) are a global phenomenon, with an estimated 4,000 deals taking place every year. However, they are not a recent development; four periods of high merger activity, also known as merger waves, occurred in the United States in 1897-1904, 1916-29, 1965-69, 1984-89 and 1993-2000 (ILO, 2001; Jimmy, 2008; Mangold and Lippok, 2008) while M&As staged in Nigeria in 2004/2005 with effect from January 1, 2006 under governorship of Professor Charles Chukwuma Soludo at the Central Bank of Nigeria (CBN). On one month assumption of office/duties, Charles Soludo worked out details of an agenda for repositioning the CBN and the financial system for the 21st century with an outcome of pruning the Nigerian eighty nine (89) Banks to twenty five (25) on or before December 31, 2005.
Therefore, the terms mergers, acquisitions and consolidation may often be confused, look similar and mostly used interchangeably. However, the three have different meanings.
A merger refers to the combination of two or more organisations into one larger organisation. Such actions are commonly voluntary and often result in a new organizational name (often combining the names of the original organizations).
An acquisition, on the other hand, is the purchase of one organization by another. Such actions can be hostile or friendly and the acquirer maintains control over the acquired firm.
Nigeria banking reform is a product of the global efforts at revamping the world economy. First it was a millennium development goals (MDG), nest it was new partnership for Africa Development (NEPAD) Strategy before the National Economic Empowerment and Development Strategy (NEEDS). All these have been thing in common: The Economic Development of Nigeria for a long time in the history of policy reforms in Nigeria, developing the banking sector was given priority attention. Various directive were given to the banking sector with the aim of developing other sectors, this propelling the entire economy.
According to berger et al, (1998), the restructuring effect is a dynamic effect of the (M&A) due to a change in focus in which the institution changes its size, financial condition or competitive position from their perform values, after consummating M & M. In a simple example as stated, the merger of the N600 million banks and the N400 million bank might eventually result in a merged bank of only N810million rather then the N1billion bank. This could occur, for example, if the purpose in the mergers was to reduce excess banking capacity in the local market. This reduction in bank size from the N1billion perform bank to the N810 million actual bank would likely increase its proportion of assets devoted to small business. Lending since smaller institutions tend to have higher proportion of these loans.
Merger and acquisition or any other form of consolidation may influence bank interest rates, competition and transmission mechanism of monetary policy in so far as the increase in size and the opportunity for reorganization involved may either provide gains in efficiency that bear an marginal costs or give rise to increase in market power, or both together.
Umoren (2007), posits that merger and acquisition is simply another way of saying survival of the fittest that is to say bigger survival of the fittest that is to say a bigger, more efficient, better capitalized more skilled industry. It is primarily driven by business continues and or market forces and regulatory interventions. This issues therefore, which this study intend to address are whether mergers and acquisition will bring about efficient reliable and sound capital base for the bank that fully embraced mergers and to what extent can bank merger boost the confidence of the customers, the investors, the shareholders and ability to finance the real sector of the Economy.
Since merger and acquisition cannot be over emphasized, this prompted the researchers’ interest to asses the perceived consequences of mergers and acquisitions on the banking in Nigeria.
1.2 STATEMENT OF THE PROBLEMS
Over the years, the most disturbing problems that facing the bank mergers and acquisition in Nigeria includes the following;
- There is problem of merger in the productivity of Nigerian Banks.
- There is problem of merger in reinstate public confidence on Nigeria banks.
- Problem of bank merger in succeeding in curbing bank failure in Nigeria.
- There is problem of merger and acquisition in improving the services rendered by Nigerian banks.
- There is problem of merger and acquisition in facilitate economic growth and stability in Nigeria.
- There is problem of merger and acquisition in other sectors of Nigeria economy.
1.3 OBJECTIVES OF THE STUDY
The main objectives that made the researcher go to this topic are as follows:
- To find out the effect merger will have on the productivity of Nigeria banks.
- To find if merger will reinstate public confidence on Nigeria Banks.
iii. To find if bank merger succeeded in curbing bank failure in Nigeria.
- To find if merger and acquisition will improve the services rendered by Nigerian banks.
- To find out if merger and acquisition will facilitate economic growth and stability in Nigeria.
- To find if bank merger and acquisition will affect other sectors of the Nigerians economy.
1.4 SIGNIFICANCE OF THE STUDY
This study will be immense benefit to bank directors, prospective investor, employees, financial analyst, financial consultants and the public in general.
The study wills also facilitates the understanding of participant banks that intends to merger. It will also lead to growth, expansion, as well as improvement of the service rendered by Nigeria banks. The study will also leads improved technical know how in the banking industry.
This study will in addition service as a guide and a reference material to other students conducting similar research work on the same or related topic.
1.5 RESEARCH QUESTIONS
The following are considered relevant as research questions in the course of this study;
- Does merger affect the productivity of Nigeria banks?
- Does merger reinstate public confidence on Nigeria banks?
iii. Has bank merger succeeded in curbing bank failure in Nigeria?
- Does merger and acquisition improve the services rendered by Nigeria banks?
- Does merger and acquisition facilitate economic growth and stability in Nigeria?
- Does bank merger and acquisition affect other sectors of the Nigeria Economy?
1.6 RESEARCH HYPOTHESIS
In the course of this study, the following research hypothesis was formulated:
H0: Bank merger do not affect the productivity of the banking sectors.
H10: Bank merger affects the productivity of the banking sectors.
H0: Bank merger has not reinstated public confidence on Nigeria banks.
H1: Bank merger has reinstated confidence on Nigeria banks.
H0: Merger and acquisition have not improved the service rendered by Nigeria banks.
H1: Merger and acquisition have improved service rendered by Nigeria banks.
1.7 SCOPE OF THE STUDY
The research work would direct itself on merger and acquisition and their effects on bank performance with respect to limited bank for Africa (UBA).
It would highlight on the need for investing public to understand the financial implication (involvement) in mergers and acquisitions before embarking on it. The researcher would consider mergers and acquisition as a key factor to overcome economic recession as considered to key person, who would furnish detected information about banks that are involved in merger and acquisition.
1.9 DEFINITION OF TERMS
Merger: Is a situation where by two or more companies
that have the same ideology, equal strength and objectives comes together from one company for better management and to restructure their capital or to reduce cost.
Acquisition: This is process where by the bigger company swallow the smaller company and everything about the smaller company will go in other to maintain a higher identity.
Consolidation: Is a combination of two or more
companies to form new company, now of them will bear the name or identify, they will come with a new assets.
Absorption: Is where by all the companies that come
together for amalgamation loose their identify except one.