Merger can be defined as the combining of companies; the joining together of two or more companies or organisations and An Acquisition can be defined as the act of acquiring something According to the Encarta Dictionaries. According to answers. com, Recapitalization is restructuring a company’s debt and equity mixture, most often with the aim of making a company’s capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company’s capital structure and replacing them with bonds.
Recapitalization in Nigeria banking sector, has built a solid foundation for Nigerian banks to compete favourably with their counterpart world over. Recapitalization causes unemployment due to downsizing, merger and acquisition, it causes deflation as more money is raked from peoples hand (through sales of shares) In order to build the new capital base. It also leads to current crisis of the banking sector (I. e. he unethical lending’s without collateral as the banks has so much money to give to nobody as the recapitalization is aimed at attracting foreign investors that cries of the country’s weak financial/capital market. BACKGROUND OF THE STUDY GLOBAL VIEW Abstract We study the stock market valuation of mergers and acquisitions in the European banking industry. Based on a sample of very large deals observed from 1988 to 1997 we document that, on average, at the announcement time the size-adjusted combined performance of both the bidder and the target is statistically significant and economically relevant.
Although our sample shows a great deal of cross-sectional variation, the general results are mainly driven by the significant positive abnormal returns associated with the announcement of domestic bank to bank deals and by product diversification of banks into insurance. On the contrary, we found that M&A with securities and conclude with foreign institutions did not gain a positive market’s expectation. Our results are remarkably different from those reported for US bank mergers.
We explain our different as stemming from the different structure and regulation of EU banking markets, which are shown to be more similar between them than as compared with the US one. Abstract purpose-Recapitalization, mergers and acquisitions are the most crucial issues confronting the banking industry in recent times. Yet information relating to these issues is rarely reported in print. The purpose of this paper is to present the results of a survey aimed at understanding the challenges faced within the banking industry and the reactions of the banking underwriters towards the recapitalization exercise.
MERGER AND ACQUISITION IN NIGERIA’S PERSPECTIVE Following the announcement by the central bank of Nigeria on July 6, 2004 about a major reform program that would transform the banking landscape of the country, an unprecedented process of merger and acquisition has taken place in the Nigerian Banking Sector shrinking the number of banks from 89 banks to 25 banks or banking groups involving 76 banks which altogether account for 93. 5% of the deposit share of the market.
Thirteen (13) out of the 89 banks, accounting for only 6. 5% of the deposit share of the industry were not able to make it (CBN, 2006). Mergers and acquisitions represent the ultimate in change for a business and it is expected to add value to the business. No other event is more difficult, challenging, or chaotic as a merger and acquisition. It is imperative that everyone involved in the process has a clear understanding of how the process works.
However, merger and acquisitions do not add value in all cases (Ajayi, 2005). There are cases where the synergies projected for merger and acquisition deals are not achieved. Problems and cultural issues are often cited as the top factors in failed integrations. While merger and acquisition activities constitute a growing area of study, the research currently suffers from several limitations. The problem most commonly cited is that the vast majority of work in the area is either based on case study in developed countries.
The main thrust of the 13-point reform agenda was the prescription of a minimum shareholders’ funds of N25billion for a Nigerian deposit money bank not later than December 31,2005. The banks were expected to shore up their capital through the injection of fresh funds where applicable, but were most importantly encouraged to enter into merger/acquisitions arrangements with other relatively smaller banks thus taking the advantage of economies of scale to reduce cost of doing business and enhance their competitiveness locally an internationally.
Furthermore, there have been no studies that evaluate the effects of merger and acquisition in bank recapitalization in Nigeria as it is a rare occurrence in the country not until the recent banks mergers and acquisitions witnessed in the banking sector as occasioned by the banking reform. This study shall attempts to bridge this gap. STATEMENT OF THE PROBLEM The recent outbreak of bank mergers in Nigeria is attracting much attention, partly because of heightened interest in what motivates firms to merge and how mergers affect efficiency.
However, there are often two distinct views to the rationale behind merger and acquisition. The first held view of mergers, especially those involving mega firms, is that firms are merging just to get bigger and not to get more efficient. Accompanying that notion is the fear that as merging firms grab greater market share, individual freedoms, competition and efficiency are threatened, because bigger is perceived as greater concentration of power. The second view holds that firms merger not just to get bigger but also to be more efficient.
It is claimed that mergers enable the banking industry to take advantage of new opportunities created by changes in the technological and regulatory environment. A fallout of this is the reduction in the number of banks nationwide but the concentration of power in local banking markets has not increased. And the very force of regulatory change that spurred bank mergers is also bringing new sources of competition to local banking markets. Hence, mergers are playing a useful role in reshaping the banking industry without risking a lack of competition however, it impacts on efficiency deserves attention.
This study shall investigate these two contrasting views by examining the effect of the merger and acquisition that had taken place in the Nigerian banking sector on the efficiencies of a selected bank. OBJECTIVES OF THE STUDY The purpose of this project is to examine the overall motive for banks mergers and acquisitions in the Nigerian banking sector, The study will also focus on these objectives: 1). To investigate the impact of merger and acquisition on bank efficiency. 2). To examine the impact of merger and acquisition on the level of competitiveness in the Nigerian banking sector. 3).
To identify the motives behind corporate merger and acquisition. 4). To identify those that would benefit and lose in the merger and acquisition process. LITERATURE REVIEW Mergerstat review: international mergers and acquisitions research focuses primarily on wealth transfers. For instance, Doukas and Travlos (1988), besides offering an excellent review of this literature, contrasts the returns to shareholders from U. S and non U. S. based firms expanding into foreign markets. Conn Connell (1990) also include an extensive literature review of merger and acquisitions within their empirical study of wealth transfers between U.
S. and British firms expansion into each other’s markets. Outside of the wealth transfer research, empirical international merger and acquisition research is lagging behind its domestic (e. g. ; U. S. ) counterpart which is rich in studies from the perspective of both sides of the negotiation table. Article from Antitrust Bulletin This article provides a broad-brush treatment of the empirical economies literature regarding the effects of merger acquisitions. Much of the literature has direct or indirect implications for competition policy. Merger and acquisition motives
There are a number of motives that might play a role in merger activity. The most general motive is simply that the purchasing firm considers the acquisition to be a profitable investment. The most common theme found in the work of economists who have written about merger activity is that mergers are often thought of as an alternative form of investment. Firms will undertake acquisitions when it is the most profitable means of enhancing capacity, obtaining new knowledge or skills, entering new product or geographic areas, or reallocating assets into the control of the most effective managers/owners.
Thus many of the same factors that influence major investment decisions would also influence major investment decisions would also influence merger activity. Firms may combine their operations through mergers and acquisitions of corporate assets to reduce production costs, increase output, improve product quality, obtain new technologies, or provide entirely new products. The potential efficiency benefits from mergers and acquisitions include both operating and managerial efficiencies. RESEARCH QUESTIONS The study would examine the following questions: 1).
What are the implications of bank merger and acquisition? 2). What are the motives behind bank merger and acquisition? 3). How do merger and acquisition impact on efficiency? 4). How would bank merger and acquisition affect competition in the Nigerian banking sector? 5). What are the benefits and short-comings of merger and acquisition? HYPOTHESIS An hypothesis according to the Encarta dictionary is a theory needing investigation; a tentative explanation for a phenomenon, used as a basis for further investigation OR its also an assumption; a statement that is assumed to be true for the sake of argument.
The hypothesis that would be tested in the course of this research is stated below as: 1). That bank merger and acquisition does not affect the banks performance in Nigeria 2). That bank merger and acquisition affects the banks performance in Nigeria RESEARCH METHODOLGY The research work will make use of the econometric procedure in estimating the relationship between the effect of merger and acquisition in bank recapitalization in Nigeria . The ordinary least square (O. L. S) technique will be employed in obtaining the numerical estimate to coefficient in different equation.
The O. L. S method is chosen because it possess some optimal properties; its computational procedures is fairly simple and it is also an essential component of most other estimation technique. SIGNIFICANCE OF THE STUDY One major significance of this project work relates to the evaluation of merger and acquisition in terms of its impact on efficiency in the post-consolidation era in the Nigerian banking sector. This will serve as a yardstick for the justification for the recent bank merger and acquisition in the Nigerian banking sector.
DEFINITIONS OF RELATED TERMS (i) Merger:- A merger (or an amalgamation) occurs when two or more companies transfer their businesses and assets to a new company (or to one of themselves) and in consideration, their members receive shares in the transferee company. (ii) Amalgamation:- The word ‘amalgamation’ is sometimes used interchangeably with the word “merger”. Like merger, an amalgamation is the fusion of the businesses of two or more companies under the ownership of one company while retaining the rights and interests of members of the fusing companies. iii) Acquisition:- An acquisition occurs when one company acquires sufficient shares in another company so as to give it control of that other company. This may be by a take-over bid or by purchasing shares in the market. (iv) Take–Over/Take–Over Bid:- This is an offer to acquire shares of a company, whose shares are not closely held, addressed to the general body of shareholders, with a view to obtaining at least sufficient shares to give the offeror voting control of the company.
SCOPE OF THE STUDY Although, about twenty-five banks emerged after the recapitalisation exercise, nineteen of them were products of merged banks. However, the merger between Standard Trust Bank and United Bank for Africa was the least expected and many are of the opinion that the merger was not to meet the December 31 deadline of the apex, but fuelled by the need to survive and be a major player in the post-consolidation era in Nigerian banking sector.
In carrying out this research work, attention would be focused on the Nigerian Banking Industry with special reference to the merger between United bank for Africa (UBA) and Standard Trust Bank (STB). Besides, the field survey shall be conducted only in Lagos branches of the new United Bank for Africa (UBA). LIMITATION OF THE SYUDY The limitation of this study are insufficient time to carryout a deeper study, unwillingness of some organisations to divulge information, distance of some companies of choice and insufficient fund, limited materials to research with.