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PROJECT TOPIC: EFFECTS OF MERGER AND ACQUISITION ON OPTIMAL GROWTH (A CASE STUDY OF OANDO PLC)

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ABSTRACT

Corporate growth was much desired by most companies operating in Nigeria these was because of the advantage of high profit ability to dictate to some certain degree in terms of industry and market which lead to enlargement in market share brought about by the growth made in corporate strategies used. The strategies being about the desire and expansion of Oando Plc in Nigeria. This research project evaluated M & A as a corporate growth strategy in Nigeria by determining how mergers and acquisition that offer speed to the market place and catapult to advantageous and viable positions. Agility that now sustains business growth and survival in Oando Nigeria Plc. Mergers encourages to achieve economics of scale that would arise from the operations of the resultant two or more companies. It will create a strong and more viable company with increased competitive ability and increase prospects for shareholders’ returns. It involves reduction in operating costs of company’s operation. This has lead the company as a customer focused and performance driven company that is comprised as a group of companies that symbolize dynamism, integrity, service delivery and professionalism in the energy and oil sector in Nigeria market and Africa from its origin in downstream petroleum products marketing redefined its business imperative to encompass the entire value chain in the oil and gas industry.

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

A critical analysis of the business environment in Nigeria today shows that most of the companies in operation to survive, for instance companies like, Kingsway stores, UTC, Chanri, FAMAD (formally known as Baba) AG Leventis, just to mention few, that were the toast of the town in the 1980s have either folded up or are now merely a shadow of their former states.

The rate of corporate failure in Nigeria has been very high and could even get worse if nothing drastic and urgent is done about it. Ewubare (2003); Simulating corporate Growth and Survival through mergers and acquisitions, opined that the reason some of these companies could not survive or let alone not grow could be attributed to a plethoral of reasons one of which is unfavourable operating environment. In his words, lithe business mode of Nigeria came under attack when the Babangida administration uncoupled the naira from the prior fixed exchange rate regime and introduced a measure of volatility and uncertainty in the Nigeria Economy”. This he added” Let the crashing devaluation” of the naira on a clative basis” Furthermore, Ewubare stated that why companies in Nigeria have a low corporate growth rate is due to the absence of vision & imagination i.e. his view most companies in Nigeria lack the innovation ideas and creative spirit to grow in the midst of an unfavourable environment. British petroleum and Amaco oil during oil companies also dropped significantly, had the foresight to merge for survived. Their mergers created the largest company in the UK in terms of share price return in investment and market share. (New York times, 2000) This single merger success story in the oil industry created a foot print for other oil companies, world over to follow almost immediately. Ironically, in spite of this and successful consolidation stories it is discouraging to know that merger failure rate (in terms of increasing share holders value) was put at a 83% and the general failure rate put some between 40 – 80% in a 1999 survey (Porter, and Warsh 2002) suggests that up to 65% of failed mergers and acquisition are due to “people issue” i.e. intercultural difference causing communication breakdowns that results in poor productivity.

In addition, Leis (2002) opined that sever factors contribute to this dismal statistic. These failures are not usua.lly caused by outside factors like the market competition, high purchase premium or excessive beverage, rather, the failure has three primary causes disparate management styles organization, culture difference and clashes in decision – making processes. According to him, the biggest challenge in handling the human side of the merger equation. People issues ultimately drive performance can censure a majority of operating cost.

Business combination in Nigeria until recently are not a major feature although a couple of companies compelled by their global affiliations have been involved in merger schemes, however the consolidation drive of the central bank of Nigeria (CBN) is increasingly, popularizing the practice of mergers and acquisition in Nigeria both in the banking and corporate sector. In view of this current trend, it would help prevent the high rate of consolidation failures while helping to enhancing corporate failures.

1.2   STATEMENT OF THE PROBLEM

The harsh and dwindling economic conditions today have created a bleak growth prospect for most corporate organizations in Nigeria. These harsh economic condition which include high interest rate, increasing devaluation of the naira, restrictive credit policies, low exchange rate of the naira for some major world currencies among other conditions have led to companies in Nigeria operating a very high costs, unable to secure adequate funds for their operations, increase working capital requirement among others, This ugly trend has really hampered corporate growth in Nigeria. Hence, there is urgent need for companies in Nigeria to craft strategies to enhance their growth in the light of these harsh economic conditions. This research work seeks to evaluate mergers and acquisition as a way of corporate growth can be achieved in Nigeria.

1.3   RESEARCH QUESTIONS

This research work will find answers to the questions below:

  1. Does mergers and acquisition lead to increase in profit – ability?

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