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THE EFFECT OF MERGER AND ACQUISITION ON AN ORGANISATIONAL PERFORMANCE

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The task of achieving the aims of an organization is one that has for many years remained a hard not to crack by the management of most organization, and as such left most of the organization either dead or stagnate.

The needs for policy making arise due to the nature of business firm that operates in this era.  A firm which has originally commenced operations in a single product line catering for a unique set of customers in a limited geographical area, expanded in one or more dimension.  Informal control and co-ordinations became partially irrelevant as expansion took place and the need for integrate functional areas arose.  This integration functional area arose.  This integration brings about framing of policies to guide managerial action.  Policymaking became the prime responsibility for effective management system.

The implementation phases in strategic management process consist of a set of activities by which the top management assures that the strategic choice is communicated and related to both the organization and its people.  This is to say that implementation encompasses the activity of developing the organizational structure and climate best suited for the implementation of the chosen or adopted policy.

In Nigeria, mergers and acquisitions were not so common until recently due to the economic down turn. The current economic climate in the country which is characterized by shortage of foreign exchange for the importation of goods, low exchange rate of the naira the credit policy and globalization have increased business risks and this poses serious threats to their long term survival. As a result, previously autonomous business organization has recently been taking advantage of mergers and acquisitions, particularly in the banking and conglomerate sector of the economy to form larger  concerns needed to reduce their risks and guarantee better chances of survival

According to Belverd (1999), Merger is the aspect of corporate strategy, corporate finance and management dealing with the combining of different companies that can aid, finance or help a growing company in a given industry to grow rapidly without having to create another business entity. One or more companies may merge with an existing company through consolidation. The new single company will inherit the assets and liabilities of the separately existing companies which are then wound up. Merger is consummated by exchange of shares among the merging company’s shareholders (Nwude, 2003).

Acquisition or takeover is the purchase of controlling interest in one company by another company such that the acquired company becomes a subsidiary or division of the acquirer (Nwude, 2003). A company is said to acquire a controlling interest in another company if the  acquiring company (the acquirer) purchased and holds not less than 51% of the target company’s (the acquiree) issued and fully paid-up ordinary share capital. At this level of acquisition the acquirer company becomes the holding company while the acquiree company  becomes the subsidiary of the acquirer (Nwude ,2003).  

The adoption of merger and  acquisition offers many benefits to the companies which includes management expertise, risk diversification, stock exchange quotation, increase market share, desire for growth, technological drive, profit. Another reason for merger and acquisition is the belief that synergies exist, allowing the companies to work more efficiently together than either would separately. Such synergies may result from the firms combined ability to 

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