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EFFECTS OF MERGER AND ACQUISITION ON OANDO OPTIMAL GROWTH

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EFFECTS OF MERGER AND ACQUISITION ON OANDO OPTIMAL GROWTH


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.

 TABLE OF CONTENTS
Title page                                                                                 i
Declaration                                                                              ii
Approval page                                                                          iii
Dedication                                                                               iv
Acknowledgement                                                                    v
Abstract                                                                                   vi
Table of content                                                                       vii
CHAPTER ONE
1.0      Introduction                                                                     1
1.1      Background of the Study                                                 1
1.2      Statement of the Problem                                                4
1.3      Research Questions                                                         5
1.4      Objectives of the Study                                                    5
1.5      Scope of the Study                                                           6
1.6      Significance of the study                                                  6
1.7      Limitations of the study                                                   7
1.8      Historical background of case study “Oando Nigerian plc” 8


CHAPTER TWO
Literature Review
2.1      Introduction                                                                     11
2.2      Meaning of mergers and acquisition                                        11
2.3       Form of mergers                                                              12
2.4      Reason for merger  &  acquisition                                    16
2.5      Legal and regulatory framework for
mergers & acquisition                                                      18
2.6      Practice and procedures of mergers and acquisition                19
2.7      Merger & acquisition life cycle                                         26
2.8      Why mergers and acquisition fail                                     28
2.9      Valuation of firms for mergers and Acquisition                        35   
2.10  Financing of mergers and acquisition                              38

CHAPTER THREE
Research Methodology
3.0   Introduction                                                                     44
3.1   The merger overview                                                        45
3.2   Area of study                                                                    46
3.3   Population of the study                                                    46
3.4   Research design                                                               46
3.5   Sample and sampling techniques                                    47
3.6   Data collection instruments                                             48
3.7   Validity and reliability of the instrument                         49
3.8   Administration of research instrument                            49
3.9   techniques of data analysis                                             50

CHAPTER FOUR  
Data Presentation and Analysis 
4.1   Introduction                                                                     51
4.2   Data Presentation                                                            51
4.3   Market Share Analysis                                                     58
4.3.1        Market Share Ranking of Companies                              60
4.4   Findings                                                                          62

CHAPTER FIVE
Summary, Conclusions and Recommendations
5.1   Introduction                                                                     77
5.2   Summary                                                                                 77
5.3   Conclusion                                                                      78
5.4   Recommendations                                                           79
5.5   Recommendation for further studies                               80
Bibliography                                                                    82 

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:
i.    Does mergers and acquisition lead to increase in profit - ability?
ii.  Does mergers and acquisition lead to increase in firms’ value per-ordinary share?
iii.Does mergers and acquisition lead to increase in market shares?

1.4   OBJECTIVE OF THE STUDY
1.  To investigate how mergers and acquisitions can bring about an increase in the firms market share as a result of increase in turnover in the post merger performance.
2.  To determine how mergers and acquisition can enhance corporate growth in Nigeria and how profitability can be achieved.
3.  To examine how merger and acquisition can bring about an increase in firms value per ordinary share.


1.5   SCOPE OF THE STUDY
The scope of the research work will be limited to the period 2000 - 2005. For the purpose of this study the merger between Agip & Unipetrol would attract the highest emphasis. All other mergers and acquisition will, only be generally and indirectly referred to especially under the sub - topics.

1.6   SIGNIFICANCE OF THE STUDY
1.  Operation savings that could rest in combination of companies with similarities in investment plans, organizational structures and market.
2.  Means of gaining economies of scale and increasing income and profitability.
3.  Means of saving companies from ultimate collapse and liquidation.
4.  The activities are cost effective and the company has larger security.
5.  The borrowing capacity of a combined company is enhanced.

1.7   LIMITATIONS OF THE STUDY
This research work shall examine the background, meaning, objective and importance of mergers and acquisitions in relation to corporate growth in Nigeria it is important to note that not many cases of mergers and acquisitions have taken place in Nigeria recently. This explains the reasons why only Oando Nigeria Plc is taken as a case study.

Another constraints of the research work is absent of the manager in Kakuri branch. This has limited our sources of information to the company's annual reports, (for pre merger and post merger) scheme and other related works.
-         Lack of adequate information to get annual reports of balance sheet.
-         Financial problems
-         Lack of inadequate materials
-         Time constraints form the mergers.



1.8   HISTORICAL BLACKGROUND OF CASE STUDY "OANDO NIGERIA PLC.
Unipetrol (Now Oando Pic) the company commenced business, operations as petroleum marketing in Nigeria under the name "ESSO West Africa incorporated a Subsidiary of EXXON comp oration of the USA. The Nigeria government 'Bought ESSO' S interest and thus became the 100% owner of the Company. The company was then rebranded" Unipetrol Nigeria ltd on the 1st March, 1991, the company became a public limited company and changed its name to Unipetrol Nigeria Plc. In the same year 60% of the company's share holding was sold to the Nigerian pubic under the first phase Of the then privatization exercise. In February 1992, the company was quoted on the Nigeria Stock Exchange. Ocean oil services ltd was founded to supply and trade petroleum products within Nigeria. Ocean oil limited was found to supply and trade petroleum products worldwide. Unipetrol acquired 40% in the equity to Gaslink Nigeria limited to utilize its exclusive gas sale and purchase Agreement with Nigeria Gas Company. The later increased its skate to a controlling 51 % in 200.1. Under the second phase of the Federal Government of Nigeria privatization programme, ocean and oil became a core investor in Unipetrol by acquiring 30% of the company firm the Federal Government of Nigeria, the balance 10% of the FGBNIS holding was sold to the Nigeria public. In the year 2002 the company bid for and acquired 60% in the equity of Agip Nigeria Plc from Agip petrol international. Unipetrol Nigeria Plc merged Agip Nigeria Plc and 'was re-branded "Oando" Oando marketing emerged as Nigeria largest downstream energy group in 2003. Oando is trading arm was re-energized by the incorporation of Oando trading limited (Bermuda) and Oando supply and trading limited. This move consolidated the group is trading operations Worldwide and in Nigeria respectively. Oando power emerged as a synergy of Oando's customer relationship management expertise and Gaslinks exclusion gas distribution franchise to provide reliable power to industries. In 2005, Oando energy services company to achieve the groups AFS objectives in the upstream services industry.

On the 25th November, 2005, Dando Plc became the first African company to accomplish a cross border inward listing on Johannesburg stock of exchange ((JSE). Oando Exploration and production limited bid and won oil & Gas fields to boost upstream activities. In 2007, Gaslinks completed laying of 100km gas distribution pipeline in Lagos state, today, Oando energy services acquired two oil drilling rigs for approximately $100million for use in the Niger Delta of Nigeria. (www.oandoplc. com/Nigeria/about –Oando).




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