IMPLICATION OF MERGERS AND ACQUISITIONS THEIR EFFECTS ON BANKS PERFORMANCE (A CASE STUDY OF UNITED BANK FOR AFRICA UBA)
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IMPLICATION
OF MERGERS AND ACQUISITIONS THEIR EFFECTS ON BANKS PERFORMANCE
(A
CASE STUDY OF UNITED BANK FOR AFRICA UBA)
ABSTRACT
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
CHAPTER ONE
Introduction
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
CHAPTER TWO
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
CHAPTER THREE
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
CHAPTER FOUR
4.0
Data Presentation and Analysis.
4.1 Analysis Presentation
4.2 Test of Hypothesis
CHAPTER FIVE
5.0
Summary of findings, conclusion and Recommendation.
5.1 Summary of
Findings
5.2
Conclusion
5.3
Recommendation
Bibliography
Appendix
CHAPTER
ONE
INTRODUCTION
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;
1. There is
problem of merger in the productivity of Nigerian Banks.
2. There is
problem of merger in reinstate public confidence on Nigeria banks.
3. Problem of
bank merger in succeeding in curbing bank failure in Nigeria.
4. There is
problem of merger and acquisition in improving the services rendered by
Nigerian banks.
5. There is
problem of merger and acquisition in facilitate economic growth and stability
in Nigeria.
6. 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:
i. To find out the
effect merger will have on the productivity of Nigeria banks.
ii. To find if merger will
reinstate public confidence on Nigeria Banks.
iii. To find if bank merger succeeded
in curbing bank failure in Nigeria.
iv. To find if merger and acquisition
will improve the services rendered by Nigerian banks.
v. To find out if merger and
acquisition will facilitate economic growth and stability in Nigeria.
vi. 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;
i.
Does merger affect the productivity of Nigeria banks?
ii.
Does merger reinstate public confidence on Nigeria banks?
iii.
Has bank merger succeeded in curbing bank failure in Nigeria?
iv.
Does merger and acquisition improve the services rendered by Nigeria banks?
v.
Does merger and acquisition facilitate economic growth and stability in
Nigeria?
vi.
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 amalgam
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