Introduction
1.1 Background Of The Study
The relevance of banks in the economy of any nation cannot be overemphasized. They are the cornerstones of the economy of a country. The economies of all market-oriented nations depend on the efficient operation of complex and delicately balance systems of money and credit. Banks are an indispensable element in these systems. They provide the bulk of the money supply as well as the primary means of facilitating the flow of credit.”
Consequently, it is submitted that the economic well being of a nation is a function of advancement and development of her banking industry (Obadan, 1997).
According to the value increasing school, mergers occur, broadly, because mergers generate ‘synergies’ between the acquirer and the target, and synergies, in turn, increases the value of the firm (Hitt et al., 2001). The theory of efficiency suggests that mergers will only occur when they are expected to generate enough realizable synergies to make the deal beneficial to both parties; it is the symmetric expectations of gains which results in a ‘friendly’ merger being proposed and accepted. If the gain in value to the target was not positive, it is suggested, the target firm’s owners would not sell or submit to the acquisition, and if the gains were negative to the bidders’ owners, the bidder would not complete the deal.
Mergers and acquisitions (M&As) are a global phenomenon, with an estimated 4,000 deals taking place every year. However, they are not a recent development; four periods of high merger activity, also known as merger waves, occurred in the United States in 1897-1904, 1916-29, 1965-69, 1984-89 and 1993-2000 (ILO, 2001; Jimmy, 2008; Mangold and Lippok, 2008) while M&As staged in Nigeria in 2004/2005 with effect from January 1, 2006 under governorship of Professor Charles Chukwuma Soludo at the Central Bank of Nigeria (CBN). On one month assumption of office/duties, Charles Soludo worked out details of an agenda for repositioning the CBN and the financial system for the 21st century with an outcome of pruning the Nigerian eighty nine (89) Banks to twenty five (25) on or before December 31, 2005.
Therefore, the terms mergers, acquisitions and consolidation may often be confused, look similar and mostly used interchangeably. However, the three have different meanings.
A merger refers to the combination of two or more organisations into one larger organisation. Such actions are commonly voluntary and often result in a new organizational name (often combining the names of the original organizations).
An acquisition, on the other hand, is the purchase of one organization by another. Such actions can be hostile or friendly and the acquirer maintains control over the acquired firm.
Nigeria banking reform is a product of the global efforts at revamping the world economy. First it was a millennium development goals (MDG), nest it was new partnership for Africa Development (NEPAD) Strategy before the National Economic Empowerment and Development Strategy (NEEDS). All these have been thing in common: The Economic Development of Nigeria for a long time in the history of policy reforms in Nigeria, developing the banking sector was given priority attention. Various directive were given to the banking sector with the aim of developing other sectors, this propelling the entire economy.
According to berger et al, (1998), the restructuring effect is a dynamic effect of the (M&A) due to a change in focus in which the institution changes its size, financial condition or competitive position from their perform values, after consummating M & M. In a simple example as stated, the merger of the N600 million banks and the N400 million bank might eventually result in a merged bank of only N810million rather then the N1billion bank. This could occur, for example, if the purpose in the mergers was to reduce excess banking capacity in the local market. This reduction in bank size from the N1billion perform bank to the N810 million actual bank would likely increase its proportion of assets devoted to small business. Lending since smaller institutions tend to have higher proportion of these loans.
Merger and acquisition or any other form of consolidation may influence bank interest rates, competition and transmission mechanism of monetary policy in so far as the increase in size and the opportunity for reorganization involved may either provide gains in efficiency that bear an marginal costs or give rise to increase in market power, or both together.
Umoren (2007), posits that merger and acquisition is simply another way of saying survival of the fittest that is to say bigger survival of the fittest that is to say a bigger, more efficient, better capitalized more skilled industry. It is primarily driven by business continues and or market forces and regulatory interventions. This issues therefore, which this study intend to address are whether mergers and acquisition will bring about efficient reliable and sound capital base for the bank that fully embraced mergers and to what extent can bank merger boost the confidence of the customers, the investors, the shareholders and ability to finance the real sector of the Economy.
Since merger and acquisition cannot be over emphasized, this prompted the researchers’ interest to asses the perceived consequences of mergers and acquisitions on the banking in Nigeria.
…
