SURVIVAL STRATEGIES FOR BUSINESSES THE ROLE OF MERGERS AND ACQUISITIONS

ABSTRACT

This project work is geared toward ascertaining critically the role(s) of mergers and acquisitions among the survival strategies for businesses. It first examined businesses, the impact of businesses on the economy, strategies for business survival and the role of mergers and acquisitions.

In recent  years,  the number  and the  transaction  amounts  of mergers  and acquisition  both  domestic  and  cross  –  border,  have  increased  rapidly  in virtually all sector of business activity. Some recent changes in the business environments   of  many  countries,   include   towards   deregulation,   market liberalisation and increasing globalisation, have facilitated the wave of merger and acquisition.  Thus  the quest for  globalisation  and growth  in the Nigeria financial  sector  and  privatization  of  government  companies  gave  rise  to corporate mergers and Acquisitions.

Introduction

Chapter One

We live in a world that is characterized by changes from  political change to economic change, climatic change, educational change and social change. Interestingly, each change comes with transformation of society depending on how the change is managed. Each change emerges as either a threat or opportunity to the business environment. Hence our business environment is

as erratic and turbulent as the political environments in the developing countries due to constant change in polity and the resulting change in policy.

Business is simply an organization of people and material resources involved in buying, producing and selling of goods and services. Normally a business will go through the process of birth, growth, stabilisation, decline and death. Several factors including human skills do contribute and determine the

success or failure of a business. But failure signals decline and eventual death. Therefore no business organization would want to experience a decline let alone death hence intensive effort is made to arrest and manage any un- progressive change effects in the business operations. Business includes all profit oriented ventures such as banking, manufacturing, importation, distribution, telecommunication and other servicing industries.

Economic reforms evolve from the realization that the functioning and survival of businesses is critically significant for the stability, progress and continued prosperity of both the industrialised and the developing societies. There is therefore every need for businesses to adopt necessary strategies in response to critical change(s) in the society in order to guarantee the continual existence of such businesses. Either from a position of equal or unequal strength, a business could decide to acquire or merger with an existing business, thus giving birth to a stronger, bigger and more profitable outfit. A business that is interested in external growth could achieve that through strategic acquisition. Thus mergers and acquisitions have vital role to play in the survival strategies for businesses.

The role of merger and acquisition as a survival strategy for businesses cannot be overemphasized and have not been fully exploited. There have been few cases in the Nigeria business environment in recent times. These included the acquisition of Magnum Trust Bank by Guaranty Trust Bank; Citi Trust

Merchant Bank(now UBN Merchant Bank) by Union Bank Plc; Equity Nigeria Bank Limited by Intercontinental Bank; and African International Bank Limited and Citizens International Bank by Diamond Bank. The acquisition of Continental Trust Bank by Standard Trust Bank is unique in that the acquisition was executed as a distress resolution option. Mergers and Acquisitions are not completely alien to the Nigeria economy or Nigeria Banking Industry. There

was also the merger between the West African Soap Company and Van der Berg Limited which resulted in the formation of lever Brothers Nigeria Limited(now Unilever  ltd) in 1926, the company grew and operated until 1930 when it merger with a Dutch company Margarine unie to form Unilever Limited. The Unilever Limited later acquired Lipton Nigeria Ltd and A.J. Seward(a division of UAC) in 1984. As a result of these, Unilever in 2003 emerged the world’s third largest food group after Nestle and Kraft with high turnover rate, high sales rate and wider expansion into untapped areas.

There was also a popular acquisition of companies in 2005 by Transnational corporation popularly known as Transcorp. Transcorp a conglomerate Nigerian company with the mission of competing with multinational companies went into the acquisitions of Nigeria Nicon Norga hotel, Nigeria Telecommunications (Nitel) and MTEL during the Nigeria Privatisation exercise when distressed

Nigeria companies were sold by the Nigeria Federal Government to the public including privately owned companies.

1.1 STATEMENT OF THE PROBLEM

Businesses have continued to fail alongside with deteriorating economy due to inability to meet up with rapid economic changes and high competition. Perhaps weak capital base is the major cause of failures in businesses. Most businesses perceived to have survived failure operate at far below installed and optimum productive capacities, thus leaving one in doubt that the situation is bad enough. Giwa(1989;7).

Equally true and interesting to note is the fact that many of the casualties of this depression can either still be acquired or merged with more prosperous and strong enterprises.

Today, the trend of things is gradually witnessing rapid changes, where competition is generally an integral part of business. This guest has driven many, if not all corporate entity in the economy towards ensuring that they do not lack the required strength needed for it’s survival. One of this industrial or corporate survival strategies is mergers and acquisitions.

1.2 OBJECTIVES OF THE STUDY

The major objectives of this research work are:

1.         to assess and measure the role of mergers and acquisition in the business world. Such role as expansion, growth, profitability.

2.         to examine circumstances or factors that necessitate mergers and acquisition.

3.         to examine/evaluate the various forms and modalities of mergers and acquisition.

4.         to examine problems and pitfalls encountered by companies going into merging or acquisition.

1.3 RESEARCH QUESTIONS

1.       What are the benefits derived from ‘mergers and acquisition’?

2.         What are the circumstances and factors that lead companies into mergers and acquisition?

3.       What are the modalities for mergers and acquisition in business.?

4.       Are there pitfalls encountered during merger or acquisition?

5.         What are the pitfalls encountered in the process of acquisition or merging.?

6.         Have mergers and acquisition achieved the purpose for which it was set to achieve?

1.4 SIGNIFICANCE OF THE STUDY

The research work is intended to contribute to the advancement of knowledge particularly in the area of business combinations.

It is also hoped that businesses and other corporate bodies will find the recommendations in this work useful, businesses at the verge of closure as the only option will be revived to remain and grow through the strategies of

mergers and acquisitions.

1.5 DEFINITION OF TERMS

Merger:        The combining of two or more companies into one organization.

Also the process of integrating and combining the products of two companies in a synergistic manner to create products with expanded capability and much greater value to the customer.

Acquisition: The purchase of all or part of one organisation by another organisation.

Mergers and Acquisition: Describes the process of effectively integrating two

or more companies. If company A and company B merged and a new company C emerges, it is called a merger. But where company B dies and only company A survives, it is an acquisition.

Synergy:      Synergy is said to occur, for instance, if company A and B merge to form company C, and if C’s value exceeds that of A and B taken separately. In otherwords, it is used to identify the

condition where the combined effect of two or more courses of action is greater than the sum of the individual parts.

Business:    Commercial establishments such as profit oriented companies and enterprises.

Economy:    State of a country’s prosperity or community’s system of using it’s resources to produce wealth.

Deteriorating Economy:  State of a country’s prosperity becoming worse.

Survival Strategy:  Plan on how to keep a business in existence.

Capital Base:         Money and property invested in a business.

Small and Medium Business:    Small and Medium commercial establishment.

REFERENCES

1.       Kathryn M. Bartol et al(1991) Management, USA, McGraw-Hill, Inc.

2.       Ron Oltmanns(2003), Business coach [email protected]

3.         Ahmed A.(1989:15) Legal framework and procedure for mergers and acquisition in Nigeria. A paper presented at a seminar organised by the security and exchange commission in Lagos.

4.         Albert  et  al(1966:10)  The  corporate  merger,  Chicago  University press.

5.         Giwa R.(1989:7) Merger and Acquisition modalities and realities  of implementation. A paper presented as N.I.M seminar Lagos.

6.         Weinberg  and  Blank(1979:4)   Takeovers   and  Mergers,   London, Sweet and Maxwell.

7.       Comapanies and Allied matters act 1990(CAMA) cap. 59 LFN 1990.

8.       Labour Act cap 198 L.F.N 1990

9.       Seminar(2007) 20th Annual Directors Seminar at financial Institutions

Training Centre(FITC) Abuja, Nigeria.

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