Topic: MERGERS AND ACQUISITIONS, TOOL TO GROW MORE VIABLE AND PROFITABLE BUSINESS

Chapter One

INTRODUCTION

1.1 Background of the Study

Mergers Acquisition is the most favored or best means all over the world of saving company from serious financial distress. Mergers would give such companies another hope to start all over again under a new management system or structure which must be very well organized and has the financial resources to commence and continue the company. Mergers and acquisitions are both changes in control of companies that involve combining the operations of multiple entities into a single company. In a merger, two companies agree to combine their operations into a single entity.In an acquisition, one company purchases another company, and has the right to sell off operations, merge them into similar groups in the purchasing company, or close facilities or cancel products altogether. (Education-portal.com) In paragraph 3 of the International Accounting Standard No. 22(IAS) Acquisition is not a uniting of interest. In a more coherent form, an Acquisition arises when a company purchases the business and undertaking of another and the acquired business retains their legal existence and continues their business with new name of a holding company to the acquired company (Akaye 2006). However, both definitions seem the same but the distinguishing factor is that whereas there is fusion in a Merger, in Acquisition, both the acquired and the acquirer companies continue in existence. A good example of Mergers is the Magnum Trust Bank, NBM Bank, NAL Bank, INMB, Trust Bank of Africa and form STERLING BANK PLC. Also, an example of Acquisition is Eco bank that acquired Oceanic bank Nigeria Plc. What is currently happening in Nigeria today calls for pooling of resources together and a more efficient utilization to ensure Economic Rationalization, survival and growth which most banks in Nigeria embraced, the most valuable and effective ways of bringing together the synergies in similar organization is through Mergers and Acquisition and this is done to avoid the negative effect of liquidation and bankruptcy and also to reduce unemployment. Thus, with this means, the companies have access to growth which might be difficult to attain with their own internal resources if they stand on their own on the list, employees in the companies continue stay is guaranteed. Moreover, the major objectives of most companies which is growth and profit maximization is achieved because there is collective ideal and reduced competition. Also, Mergers and Acquisitions may be the only way to achieve optimal growth, many firms collapsed during the structural adjustment days and those that survived did so because of their ability to meet the set goals standard and reduced production cost, it became necessary for companies to pool their resources together in order to survive and grow. Finally, for companies to meet the challenges of global advancement in technology and Entrepreneurial system they should encourage Merging with one another or acquire one another so as to meet global business standard.

1.2 Statement of Problem

Every achieved business survival strategy is faced with one challenge or the other, some of the challenges associated with this study are: Inability of the concern companies to engage qualified and experienced consultants to manage the business. Most of the companies who wants to engage in mergers and acquisitions are faced with these challenges, because there are no trained or qualified and experience consultants that will guide them on how to carry out the process. Finance is another major challenge, because most of these few qualified consult are highly demanding. Constraint or existence of good will of which the valuation poses a concern. Every organization that wants to acquire another or that wants to be acquired has to properly put into consideration their good will, that is, there must the existence of good will Selection of appropriate models/ methods in relation to cost, this poses a lot of concern to firms in area of cost determination, allocation, future cash inflow etc. many companies or organizations(Banks) select or rather choose model/method that is relatively cheap or less costly and most of these methods/models are not up to the standards of the banks.

1.3 Aim and Objectives of the Study

1. To assess the impact of Mergers and Acquisitions on shareholder’s wealth creation. 2. To determine whether Mergers and Acquisitions has improve the viability and profitability of banks in Nigeria. 3. To measure the impact of Mergers and Acquisition on the growth of banking industry in Nigeria.

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