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THE ROLE OF MERGER AND
ACQUISITION ON ORGANIZATIONAL SURVIVAL IN NIGERIA
CHAPTER ONE
INTRODUCTION
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.
1.4 SIGNIFICANCE OF
THE STUDY
The researcher hope that at the completion of this study, it
will contribute immensely to the existing literature on business organization
and Oando Nigeria Plc in particular towards advancement of knowledge in thee
area of business merging, other corporate bodies in Nigeria will also find the
findings and recommendations useful especially those that are hit by the
present economic woe and are considering closing down a the only option.
Government and its agencies that arte establish to regulate
and approve merger and acquisition proposal will also find this research work
very beneficial especially in enhancing their operations.
This research work also intends to serve as a good reference
material for learning among students of various institution of higher learning,
and other researchers in the area of merger and acquisition in field of
business administration and management which is the bane of economic
development of the country.
1.5 RESEARCH
QUESTION
For this research work to be successful certain question has
to be answer in request to the contributions of merger and acquisition to
organizational survival in Nigeria.
i. What is
the impact of merger and acquisition to Nigeria economy?
ii. How can
private and public organizations survived under the merger and acquisition?
iii. Would
merger and acquisition provide social economic of scale?
iv. Does
merger and acquisition solve the depressed situation of economic woe in
Nigeria?
v. Can merger
and acquisition add significant value of the firm’s shares?
1.6 STATEMENT OF
HYPOTHESIS
“According to Egejule and Ogwo (1990). Hypothesis is a
tentative and testable explanation usually in a declarative form of the
relationship between variables either specific or general.
Ho That merger and
acquisition does not bring about improvement in market performance.
Hi That merger and
acquisition bring about improvement in market performance.
Ho That merger and
acquisition does not lead to increase in profitability of the combined firms.
H2 Tat merger and
acquisition lead to increase in profitability of the combined firms.
1.7 SCOPE AND
LIMITATION OF THE STUDY
To understand a research project of this nature, the scope is
normally defined with respect to geographical and time dimension. This research
work is concerned with the he general effect of merger and acquisition as
strategy for organizational survival with respect to Oando in Nigeria Plc. 2007
-2008.
It is a common knowledge that empirical studies in business
organization yielded results which have to be taken with the proverbial “pinch
of salt” as a result of poor data base. In this regards, the difficulties
experiences is ranging from.
·
Some of the organizations that consummated merger and acquisition are
not willing to release such information saying that such information are
classified document.
·
The research is limited to the nature of te topic itself, it is so
broad.
·
The research is constraints of non-availability of all relevant data and
non-possibility of studying all consummated mergers and acquisition in Nigeria.
·
Financial constraint, due to nature and age, the researcher faced with
the high cost of transport to move from one place to another where data and
relevant information related to this topic could be obtained.
·
Finally, the reluctant and incorporate attitude of respondents to
questions is yet another. Limiting factor to this research work.
Despite the above mentioned limitations and many other
unmentioned, the information were confidential and the study has been
systematically carried out devoid of any bias and in line with the earlier
stated objectives.
1.8 DEFINITION OF
TERMS
1. Merger and
Acquisition (M & A): A merger is an
arrangement by which all the assets and resources of two or more companies are
brought together under the control of one company which is owned jointly by
stockholders of the original companies.
Acquisition
is the whole transfer and control of assets, liabilities, employees, management
technical relationship and expert etc of one corporation to another.
2. Economic of Scale: This refers to the fact that the
combined company can often reduce duplicate operational costs relative to
theoretically, the same revenue strum, thus increasing profit.
3. Synergy: This
refers to better use of complementary resources. (i.e. 2 + 2=5).
4. Risk
Diversification: This is the situation where a company which is in a strong
position within its own market either in terms of cash flows or market share,
decides to extends its influence by acquiring another company usually in a
different line of business, result to a wider product range.
5. WOE: A long
trouble confronting business environment..
6. Cross Selling:
A company buying a stock broker could then sell its products to the broker’s
customers, while the broker can sign up the company’s customers for brokerage
accounts.
7. Manager’s
Hbris: This refers to manager’s overconfidence about expected synergies from M
& A which results in overpayment for the target company.
8. Anti-Trust
Cycle: Is a regulatory device that analyze the impact of merger on market and
to control monopolistic situation and other trade restriction activities that
lead to adverse implication for an economy.
9. (NEPD):National
Economic Policy and Development
10. CAMA: Company
and Allied Matter Act.
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