ABSTRACT
The paper examined the Challenges Of Merger And Acquisition
in Nigerian with special reference to
Telecommunication Sector in Nigeria.
The project undertook the
general introduction into the research work which led to the review of various
literature that relates to the major variables involved in the research work.
To gather data for the
analysis of the research, a sample of twenty five (25) staff each from MTN,
Visafone, and Airtel were used to source data with the aid of a structured
questionnaire. The data were presented on table in percentages.
Two hypotheses were
formulated and tested with the use of Chi-Square technique. The analysis
resulted into rejecting the null hypotheses and accepting the alternate
hypotheses, hence deciding that;
There is a significant
change in the operating performance of the acquirer following merger and
acquisition deals. And
Merger and Acquisition
will improve the contribution of the telecommunication sector to Nigeria GDP.
The result of the
analysis was summarized, conclusion was drawn and recommendations were
proffered to telecommunication operators and the Nigeria government.
TABLE OF
CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
1.2 Statement
of Problem
1.3 Objective
of the Study
1.4 Research
Questions
1.5 Statement
of Research Hypothesis
1.6 Method
to be used in Carrying out the Research
1.7 Significance
of the Study
1.8 Scope and
Limitations of the Study
1.9 Definition
of Terms
References
CHAPTER TWO
LITERATURE
REVIEW
2.1 Introduction
2.2 Merger
and Acquisition in Nigeria Telecommunications
2.3 Distinction
between Mergers and Acquisitions
2.4 Behavioural
Issues in Mergers and Acquisitions
2.5 Mergers
and Acquisition in Relation to Corporate Finance
2.6 Purpose
of Mergers and Acquisitions
2.7 Benefits
of Merger and Acquisition
2.8 Activities
of Mergers and Acquisitions
2.9 Performance
of Merger and Acquisition
Challenges/Failure
of Merger and Acquisition
2.10 Solutions
to Merger and Acquisition Challenges
References
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 Introduction
3.2 Research
Instrument Design
3.3 Sources
of Data
3.4 Population
of the Study
3.5 Sample
Size and Sampling Technique
3.6 Restatement
of Research Hypothesis
3.7 Analysis
of Data
CHAPTER
FOUR
DATA
PRESENTATION AND ANLAYSIS
4.1 Introduction
4.2 Personal
Characteristics of the Respondent
4.3 Response
of Respondents to the Problem Areas
4.4 Testing
and Interpretation of the Hypothesis
CHAPTER
FIVE
SUMMARY OF
FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings
5.2 Conclusion
5.3 Recommendations
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Mergers and Acquisitions (M & A) continue
to be a highly popular form of corporate development. However, in a paradox to
their popularity, acquisitions appear to provide at best a mixed performance to
the broad range of stakeholders involved. While target firm shareholders
generally enjoy positive short-term returns, investors in bidding firms
frequently experience share price underperformance in the months following
acquisition, with negligible overall wealth gains for portfolio holders
(Agrawal and Jaffe, 2000).
The complex phenomenon which mergers
and acquisitions represent has attracted the interest and research attention of
a broad range of management disciplines encompassing the financial, strategic,
behavioural, operational and cross-cultural aspects of this challenging and high
risk activity. While in recent years research into the human and psychological
aspects of M&A have increased in prominence, the M&A literature
continues to be dominated by financial and market studies (Cartwright, 2005).
M&A research has tended to
develop along discipline-based lines and this has brought detailed insights
into a number of important aspects. However, it is arguable that this
specialization has been at the cost of developing a more holistic understanding
of what determines their performance and what consequences they bring.
For the purpose of this research
work, focus will be made on merger and acquisition that has taken place in the Nigeria
telecommunication companies. The challenges will be identified and viable
solutions will be suggested.
1.2 STATEMENT OF PROBLEM
Despite the goal of performance
improvement, results from mergers and acquisitions (M&A) are often
disappointing. Numerous empirical studies show high failure rates of M&A
deals. Studies are mostly focused on individual determinants. A book by Thomas
Straub (2007) "Reasons for frequent failure in Mergers and
Acquisitions" develops a comprehensive research framework that bridges rival
perspectives and promotes a modern understanding of factors underlying M&A
performance.
Merger and Acquisition in the
Nigerian telecommunication industry has not really made wave in the industry
unlike the banking industry. Most of the merger and acquisition deal of the telecommunication industry end at the
pre-merger stage, those being acquired still perform below expectation. Econet
has been acquired six times since inception, and lately acquired by Airtel yet
still on the bottom list of the performance chart of GSM in Nigeria. The merger and acquisition
of Multilinks (a CDMA operator) by
Starcomms, Visafone, and other bidders also failed several times, not until
recently it was acquired by Visafone. For the past seven months after the deal,
Visafone has not synchronized the two
network. Subscribers of multilinks still recharge with multilinks card.
It is obvious that there is a great
challenge with merger and acquisition in the Nigeria Telecommunication
industry. It is on this note, the researcher sees the need to investigate on
the challenges faced by this sector in term of merger and acquisition.
1.3
OBJECTIVE OF THE STUDY
The
aim of this research work is to investigate the challenges of merger and
acquisition with special reference to the telecommunication industry. Objectives
of the research work includes:
·
Examine
the performance and underperformance of telecommunication industries after
merger or acquisition.
·
Examine
the merger and acquisition deals that has been transacted in the Nigeria
telecommunication industry.
·
Identify
the benefits of merger and acquisition in the telecommunication industry.
·
Investigate
the functions of the performance / underperformance after merger and acquisition
in the telecommunication industry.
·
Proffer
suggestions/solutions to challenges of merger and acquisition in the Nigeria
telecommunication sector.
1.4
RESEARCH QUESTIONS
Research questions are meant to generate
possible answers to different aspects of the research problem and they should
be clearly stated such that they act as guides in identification, collection
and analysis of relevant data. In order to achieve the purpose of this research
study, the study will attempt to provide answers to the following research
questions.
·
Does merger and acquisition improve the operating
performance of the acquirer companies?
·
Is the net earnings at the post merger and
acquisition period significantly different from the pre merger and acquisition
period?
·
Do
Merger and Acquisition techniques have any impact on the performance in the telecommunication
industry?
·
Does
Merger and Acquisition improve the quality of service of telecommunication
companies in Nigeria?
·
Does
Merger and Acquisition transactions facilitate the consolidation of asset
management and provide better means and reputation in the telecommunication
industry?
1.5
STATEMENT OF RESEARCH HYPOTHESES
The
objective of this research work is to investigate and identify the challenges of
merger and acquisition in the Nigeria Telecommunication industry. To provide
answer to the research questions the following two-sided hypotheses are
formulated.
HYPOTHESIS ONE
H0: There is no significant change in the
operating performance of the acquirer following merger and acquisition deals.
H1: There is a significant change in the
operating performance of the acquirer following merger and acquisition deals.
HYPOTHESIS TWO
H0: Merger and Acquisition will not improve
the contribution of the telecommunication sector to Nigeria GDP.-
H1: Merger and Acquisition will improve the
contribution of the telecommunication sector to Nigeria GDP.
1.6
METHOD TO BE USED IN CARRYING OUT THE
RESEARCH
Research
methodology deals with the procedure used by the researcher to conduct the
study. It contains the different activities performed and methods employed by
the researcher in the study. For the purpose of collecting necessary data for
this research work, primary and secondary data collection method will be used.
The primary data collection method will be through the following:
1. Structured questionnaire
2. Personal unstructured interview
3. Observation
The
secondary data will be collected from reports and documents from the company.
Also, reports outside the company and from library and desk research
literatures will be used.
In
this study, descriptive method will be used to analyze data and also in resting
hypothesis, chi-square (X2) will be employed. Findings from this
research study will be discussed in the light of the research problem
hypothesis, purpose research questions, literatures of the research and other
relevant issues conclusions will be drawn and recommendations and suggestions
also will be made.
1.7
SIGNIFICANCE
OF THE STUDY
As M&A research has developed
largely along disciplinary lines, finance scholars have primarily focused on
the issue of whether acquisitions are wealth creating or wealth reducing events
for shareholders. The weight of evidence shows that while takeovers
unambiguously bring positive short-term returns for shareholders of target
firms, the long-run benefit to investors in acquiring firms is more
questionable. Agrawal and Jaffe’s (2000) comprehensive review of this
literature suggests that in aggregate the abnormal returns accruing to
acquiring firms in the years following an acquisition are negative or, at best,
not statistically different from zero. Importantly, these studies will also
highlight the wide variation in acquisition performance at the firm level.
However, explanations of M&A
underperformance cannot be sufficiently accounted for by the “goodness of the
strategic fit” alone without account being taken of the wider integration
process. Hence the researcher sees it important to investigate the performance
and underperformance of merger and acquisition in the telecommunication
industry, also identifying the challenges hindering the performance.
1.8
SCOPE
AND LIMITATIONS OF THE STUDY
As
there are great deals of factors determining Merger and Acquisition like the
percentages of market share, growth in revenue competitive strength, technology
capability, return on investment and overall size and the degree of
satisfaction. It is very important to state that this research study will be
focusing on the challenges of Merger and Acquisition in telecommunication
industries as a means of survival in a distressed economy with empirical
evidence from the Industry.
Limitations
In
the course of conducting this research work it is expected that the following
will constitute impediments to the effective conduct of the study
a) Time constraint within which the study
must be completed.
b) Financial constraint
c) Inaccessible and inadequate data
d) Also, combining project work with
several other activities is another stressful task that may not allow me to
cover research materials extensively.
Nevertheless,
I believe the above limitations will in no way affect the reliability and
validity of the research study.
1.9
DEFINITION
OF TERMS
MERGER: Is
the combination of two or more companies to share resources in order to achieve
common objectives. A merger implies that, as a result of the operation, only
one entity will survive.
ACQUISITION: Is
a business transaction between unrelated parties based on terms established by
the market where each company acts in its own interest. The acquiring company
purchases the assets and liabilities of the target company. The shareholders of
the target company can no longer claim any ownership. In some cases, the target
company becomes a subsidiary or part of a subsidiary of the acquiring company;
DE-MERGER OR CORPORATE SPLITS OR DIVISION: De-merger or split or divisions of a company
are the synonymous terms signifying a
movement in the company.
STATUTORY MERGER: Statutory merger relates
to the business combination where the merged (or target) company will cease to
exist. The acquiring company will assume the assets and liabilities of the
merged company. In most cases, the owners of merged companies remain the joint
owners of the combined company.
SUBSIDIARY MERGER: Subsidiary merger relates
to an operation where the acquired company will become a subsidiary of the
parent company. In a reverse subsidiary merger, a subsidiary of the acquiring
company will be merged into the target company.
CONSOLIDATION: Consolidation is
a type of merger which refers to a business combination whereby two or more
companies join to form an entirely new company.
VERTICAL COMBINATION: A company would like to takeover another company or seek its merger
with that company to expand espousing backward integration to assimilate the
resources of supply and forward integration towards market outlets. The
acquiring company through merger of another unit attempts on reduction of
inventories of raw material and finished goods, implements its production plans
as per the objectives and economizes on working capital investments. In other
words, in vertical combinations, the merging undertaking would be either a
supplier or a buyer using its product as intermediary material for final
production.
HORIZONTAL COMBINATION: It is a merger of two competing firms which are at the same stage of
industrial process. The acquiring firm belongs to the same industry as the
target company.
CIRCULAR COMBINATION: Companies producing distinct products seek amalgamation to share
common distribution and research facilities to obtain economies by elimination
of cost on duplication and promoting market enlargement.
CONGLOMERATE COMBINATION: It is amalgamation of two companies engaged in unrelated industries.
The basic purpose of such amalgamations remains utilization of financial
resources and enlarges debt capacity through re-organizing their financial
structure.
TAKE-OVER: Is
a form of acquisition where the acquiring firm is much larger than the target
company. The term is sometimes used to designate hostile transactions.
REVERSE TAKE-OVER: An
operation where the target company is bigger than the acquiring company.
However, mergers of equals (in size or belonging to the same sector of
activity) may also result in a hostile take-over.
DIVESTMENT: Selling of the parts of a
company due to various reasons : a subsidiary or a part of a company may no
longer be performing well in comparison to its competitors.
AMALGAMATION: It is a combination under a single head or a portion of the
assets or liabilities of two or more industries unit by merger or
consolidation.
TELECOMMUNICATIONS: The science and technology of communication
at a distance by electronic transmission of impulses
GSM: Global System for Mobile communications
CDMA: Code Division Multiple Access (CDMA) describes a communication channel
access principle that employs spread-spectrum technology and a special coding
scheme
NETWORKS: A group
of interconnected (via
cable and/or wireless) computers and peripherals that is capable of sharing software
and hardware
resources
between many users.
The Internet
is a global
network of networks. See also local area network
and wide area network.
SHAREHOLDERS: One who owns
shares
of stock
in a corporation
or mutual fund.
For corporations,
along with the ownership
comes a right
to declared dividends
and the right to vote
on certain company
matters, including the board of directors.
OFFEROR: A person or entity who makes a specific proposal to another (the offeree)
to enter into a contract
OFFEREE: Person or corporation to whom an
offer is made to make a contract
COMMUNICATIONS: A system
that enables users of telephones
or data communications
lines
to exchange
information
over long distances by connecting with each other through a system of routers,
servers,
switches, and the like.
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