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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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