assessment of mergers and acquisitions as a survival tool for organization in Nigeria
1.0 BACKGROUND OF THE STUDY
The increase in oil boom in the 70’s was an era of huge and expensive prospect of doubtful utility and viability. However, the heavy dependence on oil and imported input rendered the Nigerian economy to be sensitive to external shocks with the collapse of the world oil market in the mids 1981, an economic crisis emerged in Nigeria, various control measures were put in place in order to correct the disturbing situation between 1982 – 1985 but these measures failed to deal effectively with the fundamental economic and financial problems confronting the economy which was deteriorating.
The nation began to face a situation of persistence and deteriorating balance of payment problem, the external debt continually rise, the emotion of international credit worthiness and the acute shortage of raw materials and consumer goods, as agriculture suffered and severely, neglected, the country (Nigeria) was at the point of collapsing.
Considering the above circumstances, there is need for national economic reform which the federal government eventually came up with Structural Adjustment Programme (SAP) in 1988 as a strategy to end the deformation of the nation economy and achieve a turn around in the fortunes.
The current global economic depression facing the world has been described by the world economic and financial experts as the longest and deepest depression in the post war period. Major industrial developed countries share in this performance characterized by declining growth rate, high inflationary pressure, increase in number of unemployment and this trend had serious adverse effect on the economic of developing countries of which Nigeria is included.
The present development is quite affecting a substantial number of Nigeria contemporary business most of them are on the path of decline, leading to folding up of some companies and many others laying off their staff and equipment as a result of operational hardship with lack of ability to expand and decline in sales volume as well as profit.
With the present difficult situation in the Nigeria businss environment. There is need for businesses to be re-structured for survival in response to changes that is occurring in the economic environment either a company decide whether to acquire, merge or sell part or whole of its existing business thus, given birth to a stronger, bigger and more profitable outfit that is capable of surviving amidst strong competition.
1.1 HISTORICAL BACKGROUND OF OANDO NIGERIA PLC
Oando Plc commence its business operation as a petroleum marketing company in Nigeria in 1956 under the name “ESSO West Africa Incorporated” a subsidiary of Export Corporation of the USA. In 1969, the company was incorporated under Nigeria laws as “ESSO standard Nigeria Limited. In 1976, the Nigeria Government brought ESSO interest and thus, became the 100% owner of the company. The company was then rename “Unipetrol Nigeria Limited”.
On 1st March, 1991 the company became a public limited company and was known as Unipetrol Nigeria Plc in the same year, 60% of the company’s shares was sold to the Nigeria public under the first phase the then privatization exercise and the company was quoted on the Nigeria stock exchange in February 1992.
In 2000, under the 2nd phase of the Federal Government of Nigeria’s privatization programme, ocean and soil services limited became a core investor by acquiring 305 of the Federal Government’s 40% equity stock in the company, the remaining 10% was sold to the Nigeria public. The investment in the then Unipetrol Nigeria Plc by Ocean Oil Services Limited was with support of its International Technical Partners Compania Espanola De Petroleos (CESPSA) who are currently 2nd largest oil group in Spain and ranks among the top 10 oil group in Europe. CEPSA is a fully Integrated Petroleum Company involved in exploration and production, petrochemicals natural gas, trading, refining, distributing and marketing.
In August 2002, the company acquired Agip Petrol’s 60% stake of Agip Nigeria Plc, the sale of the 60% interest of Agip Petrol International was the result of an international bid conducted by Agip petrol international B.V with the assistance of an international adviser during which Agip Petroleum International selected to them Unipetrol Nigeria Plc following the acquisition of Agip Nigeria Plc the company was again i.e. branded to Oando Plc in 2003 and emerged as Nigeria 2nd largest company in the downstream sector of the oil industry with 15.64% market share.
1.2 STATEMENT OF THE GENERAL PROBLEM
Due to the present economic situation of the country (Nigeria), report indicated that many Nigeria businesses and corporate organizations have closed up while many more may soon close up, even those that have survived, it has been a mergical survival and they are operating far below installed and optimum productive capacities leaving none in doubt that the situation is bad enough, the following problems are notice.
- There is need to note the fact that many of this organization that are depressed situation can either still be acquired or merged with more prosperous and strong enterprise. In other word, an alternative to this ugly economic woe in the country should have been for companies to come together and continue through merger or acquisition.
- There is overextension which tend to make the organization fuzzy and unmanageable. There is manager’s hubris, overconfidence about synergies form merger and acquisition which results in overpayment for the target company.
- There is negative reactions from company’s employees, bankers, suppliers, customers and other which make the process by which a company is bought or sold prove difficult, slow and expensive. Thus, they are not sold as often as they might or should be.
- Multiple listing service concept has not been applicable to merger and acquisition due to the need for confidentiality.
- There is lack of proper method, apparatus and techniques for efficiently executing merger and acquisition transactions without compromising the confidentiality of thee parties involved without unauthorized release of information.
- Lack of good recording keeping of incomes from business undertakings, mostly attributed to illiteracy and in other cases, a deliberate attempt to evade tax is also a problem.
1.3 OBJECTIVE OF THE STUDY
No business is embarked upon without a set of objectives to be accomplished. Merger and acquisition are common features of modern commercial sense. Hence, the intended objectives of conducting this study are as follows:
- To examine the economic reasons behind above phenomenon and in particular to look into how organization in both private and public sectors of Nigeria economy have been surviving under merger and acquisition.
- To analyze the economic and social economic of scale associated with operations, costs of company related to theories and revenue stream. Thus, increasing profit, market share etc by absorbing a major competitor and increasing its power to set prices.
- To determine the effectiveness of merger and acquisition as a strategy for organizational survival in Nigeria cooperate bodies.
- Designed to smooth the earning results of a company which over the long term smoothes the stock price of a company, giving conservative investors more confidence in investing in the company.
- To analyse the social, political, economic and fiscal problems encountered by business organization with regards to the policy of merger and acquisition in Nigeria.
- To develop ways or means by which some of the problems which are encountered in the realization of the proceeds from the use of the proceeds improved.
- Te study attempt to investigate its strategic functions for improvement in productivity and profitability of Oando Nigeria Plc.
- It is also hope that the recommendation made if well studied and applied, could help business organization particularly Oando Nigeria Plc, in attaining her financial goals efficiently.