CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
In any organization where the business is not flourishing and there are indications of failure, one of the options available to the owner is to re-organize the business so as to close the gaps and streamline avenues for improvement. Re-organize therefore means re-engineering the b business for a better performance in near future as a result of recapitalization policy pronounced by the Central Bank of Nigeria (CBN). The investors decided to consolidate their group activities into one entity in order to meet up with their subsidiary banks. The easiest example at hand is the International Bank Group consolidation. According to professor Soludo (Former CBN Governor) in his speech (2004) Merger and acquisition should be taker seriously as an instrument for enhancing banking efficiency, size and developmental roles. The last few years have witnessed the creation of the world banking group through mergers and acquisition. The trend has been influenced by factors such as prospect of cost-saving due to economies of scale as well as more efficient allocation of resources, enhanced efficiency in resource allocation and risk reduction arising from improved management. Mergers and acquisitions especially in the banking industry is now a global phenomenon. Merger and acquisition have been identified as veritable strategic options for enhancing the efficiency of local business globally. This formed part of the communiqué issued at the end of the seminar organized by the Financial Institution Training Center with the theme “Gaining Competitive Advantage: Mergers and Acquisitions Strategic Option” The participant observed that merger and acquisition were not new in Nigeria as there had been more than 20 successful cases of mergers and acquisitions in the last twelve (12) years, which were motivated from outside the country’s boarders. In light of the foregoing, the motives behind any merger an acquisition are given as follows:
· The need to maximize the opportunities available to a company by replacing its inefficient or incomplete management.
· The need to achieve economies of scale resulting in the combined output of both enterprises.
· The need of the part of management to achieve growth market power for the company. The earliest known merger experience in Nigeria was between West Africa Soap Company Limited and Van Der Berg limited to form lever Berg Limited in 1926. However, not much merger activities were recorded therefore until the first phase of the indigenization programme in the 1970s which entails the divestment by foreign enterprises or portion of their equity to Nigeria interest. Most mergers and acquisitions of this era were “in house” arrangement to be found in (UAC) United African Company Nigeria group in which companies that had previously operated independently were brought together as division of (UAC) United of Africa company Nigeria Plc. The first merger between two public quoted company were recorded in 1983. This was the merger between (A.G) A vis Global Leventis stories.
The practices of mergers and acquisitions was not being constrained by regulatory environment but mainly by inherent attitudinal resistance to business mergers, shareholders and employers that had adopted this economic measure as help to recorded great turnover and have become giant and Colossians in economic activity in Nigeria, as shall be revealed later on his study. intercontinental Bank Group through merger and acquisition become a household name in Nigeria that has been successful. The research intends to find out the effects of merger and acquisition of financial institution on the Nigeria economy through an empirical investigation.