TABLE OF
CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Table of Contents v
Abstract vii
Chapter One:
Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problem 3
1.3 Objectives of the Study 3
1.4 Research Questions 3
1.5 Statement of Research Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Limitation of the Study 6
1.9 Definition of Terms 7
Chapter Two:
Literature Review 9
2.1 Introduction 9
2.2 Conceptual Framework 9
2.3 Theoretical Framework 11
2.4 Empirical Evidence 14
2.5 Types of Merger and Acquisition 16
2.6 Reasons for Merger and Acquisition 17
2.7 Prospects of Merger and Acquisition 19
2.8 Challenges of Merger and Acquisition 22
2.9 Accounting for Merger and Acquisition 25
2.10 Valuation of Merger and Acquisition 28
2.11 Financing Merger and Acquisition 30
2.12 Causes of Failed Merger and Acquisition 31
2.13 Defensive Tactics for Merger and Acquisition 33
2.14 Regulation of Merger and Acquisition 34
2.15 The Tax Implication of Merger and Acquisition 35
2.16 Summary of the Chapter 42
Chapter Three:
Research Methodology 44
3.1 Introduction 44
3.2 Research Design 44
3.3 Population and Sampling Procedure 45
3.4 Validity and Reliability of Research Instrument 46
3.5 Data Analysis Techniques 46
Chapter Four:
Data Presentation, Analysis
and
interpretation 49
4.1 Introduction 49
4.2 Data Presentation and Analysis 49
4.3 Hypotheses Testing 62
Chapter Five:
Summary of Findings, Conclusion
and
Recommendations 70
5.1 Introduction 70
5.2 Summary of Findings 70
5.3 Conclusion 72
5.4 Recommendations 72
References 75
Appendix A 78
Appendix B 79
Appendix C 81
Abstract
This research work examines the implication of tax
on merger and acquisition in the Nigeria’s banking industry. the banking
industry is a sector that occupied a unique position in the nation’s economy.
therefore, this research work has a critical look at the tax payable by merger
banks in the post consolidation era that is, the gains and available tax
relieves, banks are likely to enjoy after mergers, and acquisition exercise and
it also found out that few merged banks enjoy these benefits. During the
research, it was observed that some tax law on mergers and acquisition is not
encouraged. But with some policy adjustment and recommendation given, those loopholes
will be a thing of the past. According to our findings, regularity bodies were
seen to have greater responsibilities to foster gradual and sustainable growth
in relationship between the regulatory bodies and intending banks that want to
merge or acquire another bank.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Nowadays, one of the
ways companies improve their growth survival due to external factors and
competitors is by merging with another company or acquiring them.
Merger and acquisition
(M & A) is not a recent development but a global phenomenon. It is traced
back to the United States of America (USA) where it is known, as merger wave.
The first incident of merger wave was between 1897 and 1904. Further, merger
wave were 1916-1929, 1965-1969 and 1984-1989. Modern merger and acquisition
started in the early 1990s and has brought about greater achievement in the
volume of transaction. Merger and acquisition have been an important tool for
the bank reduction globally, example is the USA where banks had been reduced
from 12,333 to 7,122 between 1980 and 1998. France and Denmark have also
experienced a reduction on 43% and 57% respectively between the same period of
that of the USA.
With the reforms in the
Nigeria Banking Industry by the Central Bank of Nigeria (CBN) stipulate a
minimum capital base of N25 billion from N2 billion, this gave rise to merger
and acquisition which is one of the 13 point agenda of the then CBN Governor,
Prof. Charles Soludo. As a result of the reform, most bank could not meet up
with the N25 billion capital base or reserve in issuing of shares so it gave
rise to consolidation. The first group of bank that merged was All State Trust
Bank, Hallmark Bank, though; a memorandum of understanding (MOU) was signed to
formalize the merger, but next was Intercontinental Bank Plc, Gateway Bank,
Equity Bank of Nigeria and Global Bank Plc. Also was First Atlantic Bank Plc, Assurance
Bank Plc, Manny Bank and Guardian Express Bank and the formation of a Mega Bank
called Astra Bank.
Guaranty Trust Bank was
the first to sign a memorandum of understanding to acquire Inland Bank. Also,
UBA group acquired Metropolitan Bank on the 29th of May, 2007.
There is a wide range
of issues to be addressed in any type of business such as legal, human
resources, taxation, information technology, accounting issues. But, our focus
is to critically examine the tax implication after merger and acquisition in
the banking industry in order to evaluate the strength and beauty or
disadvantages of consolidation.
1.2
STATEMENT OF PROBLEM
In every merger and
acquisition, there are tax implication so that the role of taxation in any
consolidation should be taken seriously but most often tax implication are not
really considered properly due to the fact that the authority rested with the
powers and duty to introduce measures and policies is not effective.
Given this inefficiency
in tax administration, tax revenue has continue to drop thereby making it
increasingly difficult for government to deliver on their electoral problems.
It is this problem of poor tax administration in Nigeria that this project
intend to seek possible solution for.
1.3
OBJECTIVES OF THE STUDY
The primary objective
of the study is to critically analyze the implications of tax on banks after
merger and acquisition. It strives to also achieve other objectives like:
i.
to determine tax
gains enjoyed by banks in the post consolidation era.
ii.
To ascertain the
reasons some banks fail in the post consolidation era despite tax gains and
relieves.
iii.
To find out the
extent to which legal and professional body can effectively control the tax
aspect of merger and acquisition.
1.4
RESEARCH QUESTIONS
Due to such situation
above, some research questions are being raised, such as:
i.
What are the tax
implications on the banks after merger and acquisition, especially tax gains?
ii.
Why do some
banks fail to grow despite available tax gains in the post consolidation era?
iii.
How do legal and
professional bodies control and regulate the tax aspect of merger and
acquisition?
1.5
STATEMENT OF RESEARCH HYPOTHESIS
Hypothesis is a
conjectural statement of the relationship between two or more variables,
(Speiga, 1992). In the course of the research work, the following hypothesis
about the statement of problem will be tested in a null hypothesis.
a. H0: Tax gains and tax relieves do not determine
the outcome of merger and acquisition.
b. H0: There is no relationship between effective control by regulatory
bodies and the outcome of merger and acquisition activities.
c. H0: Poor management personnel do not impact
negatively on the success of merger and acquisition.
1.6
SIGNIFICANCE OF THE STUDY
To show that a research
is important, it must make an impact on the society being studied. This
research will be relevant in respect of the following:
a.
Researcher: It
will serve as a reference point for the future researchers’’ interest.
b.
Shareholders:
It will give more enlightenment to shareholders on the effect of tax after
consolidation.
c.
Society:
It will serve as a basis in educating members of the public on issues relating
to tax and its implication during mergers and acquisition.
d.
Government: It
will enable government to control and regulate the tax aspect of merger and
acquisition.
1.7
SCOPE OF THE STUDY
This research is aimed
at examining the aspect of tax in merger and acquisition in the banking
industry.
Thus, the researcher
will cover the post merger and acquisition in the banking industry while
emphasizing on its tax implication or area.
This research will
focus on the merger and acquisition of Ecobank Plc.
1.8
LIMITATION OF THE STUDY
Research work is not an
easy task, especially when one is researching into an area which people have
not worked on.
They are bound to be
some impediments and they include:
i.
The
unwillingness of some of the staff of the bank to give required information
necessary for the research works.
ii.
The sample size
to be selected posses as a limitation to the study of the large nature of the
banking sector.
iii.
The cost of
collecting and analyzing data and other overhead costs involved in the research
work.
1.9
DEFINITION OF TERMS
i.
Merger: This
is a form of business combination in which the combining businesses lose their
operational identify to form a new one for that same purpose.
ii.
Acquisition: This
occur when there is a significant outflow of material resources (mostly cash)
from an offer or (acquiring) company to the offers (acquired) company’s
shareholders as purchased consideration for their holdings.
iii.
Capital Base:
This is a paid up capital and reserves unimpaired by loses.
iv.
Consolidation:
This is the aggregation of the values of the asset and liabilities of the subsidiary
company and the holding company.
v.
Company:
It is a corporate entity with complex network of contract binding on various
interest groups.
vi.
Conjectural:
This means to form an opinion about something even though you do not have much
information on it.
vii.
Memorandum of Understanding: Is a record of legal requirement that has not yet
been formally prepared and signed.
viii.
Tax:
It is a compulsory levy imposed by the public authority on the income, profit
or wealth of an individual, family, community and corporate or unincorporated
body et.al for the purpose of providing pubic infrastructure.
ix.
Taxation:
It can be defined as the process of system of raising income through the
levying of various types of tax.
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