INTRODUCTION
The term mergers and acquisition
cannot be complete or well explained in Nigerian banking sector without making
reference to bank consolidation policy of Prof. Charles C Soludo which sort to
increase minimum paid-up share capital requirement of Nigeria Banks from #2
Billion to #25 billion in July 2004, with December 31, 2005 as the deadline.
The aim of the policy was to increase the paid-up share capital which amongst
other things will strengthen the financial capacity and effectiveness of the
Nigerian banking sector. Ugwu (2006) Following the 18 moths ultimatum given by
the central bank of Nigeria on July 2004 to all deposit taken banks in Nigeria
to increase their paid-up capital to minimum of #25billion with a deadline on
December 31 2005, most banks resorted to mergers and acquisition.
There has been an aggressive foray of Nigerian banks
into foreign countries in a bid to offer their ever dynamic and expanding range
of products and services to markets brimming with perceived opportunities. For
example, since first Bank (as the first bank to set foot on the shores of
Europe, specifically the United kingdom) and Union Bank of Nigeria plc (which
followed a year after), more recent emigrants included the likes of zenith bank
plc, Guaranty Trust Bank Plc (the first Nigerian bank to offer full fledged
commercial banking services: both corporate and retail: having received its
operational license form FSA, financial service Authority, one of the strictest
financial regulatory authorities in the world) and intercontinental bank Plc.
Access bank which opened for business on October 15, 2008 is the latest of the
pack. United bank Africa plc also has its registered office in the United
States of America. All of these, not to mention the rapid expansion of several
Nigerian banks into several African continents. In 2009, Ecobank transnational
incorporated has disclosed plans to up shop in France CIBN (2008).
MERGERS AND ACQUISITION
The term merger, acquisition and consolidation are
often used interchangeably. However, there are some differences. A merger
refers to the combination of two or more organization into one larger
organization. Such actions are commonly voluntary and often result in a new
organizational name (often combining the names of the original organizations).
According to Coyle, (2000) merger is a voluntary amalgamation of two firms on
roughly equal terms into one new legal entity. Mergers are effected by exchange
of the pre-merger stock (shares) for the stock of the new firm. Owners of each
pre-merger firm continue as owners, and the resources of the merging entities
are pooled for the benefit of the new entity. If the merged entities were
competitors, the merger is called horizontal integration, if they were supplier
or customer of one another, it is called vertical integration. Cossey, B.,
(1991). 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. Mergers and acquisitions differ from a
consolidation, which is a business combination where two or more companies join
to form an entirely new company. All of the combining companies are dissolved
and only the new entity continues to operate Kalu, (2000).
Section 590 of the Nigerian companies and allied
Matters act 1990 defines merger as “any amalgamation of the undertakings of any
part of the undertakings or part of the undertakings of one or more companies
and one or more bodies corporate’. In the same vain, Gaughan (2007) defines
merger as “a combination of two or more corporations in which only one
corporation survives” he further stated that the acquiring company assumes the
assets and liabilities of the merged firm. Okonkwo (2004) writes that a merger
may be achieved through acquisition, in this case, the shareholders of the
acquired company are paid off and the acquirer becomes the owner of all or a
substantial part of the assets of the acquired company. Also Kalu (2003) stated
that terms such as “merger”, “acquisition”, “buyout” and “takeover” are used
interchangeable and are all part of the M&A parlance, but was quick to
point out the differences when the described merger as the process whereby
corporations come together to combine and share their resources to achieve
common objectives with the shareholders of the merged firms still retaining
part of their ownership and this may sometimes lead into a new entity being
formed while acquisition resemble more of an arm’s-length deal, with one firm
purchasing the assists or shares of the other and the shareholders of the
acquired firm ceasing to be owners of the new firm.
Apart from the three foreign owned banks that survived
the consolidation reform exercise, there
is a considerable modification of the ownership structure of the banks;
ownership is now widespread and better diversified. The emergent well
diversified ownership structure promotes better corporate governance as banks
can now be subjected to discipline from the capital market CIBN 2008; Ekundayo,
2008). With over a US$1 billion Tier 1 capital, some Nigerian banks can now
compete favorably with their counterparts from other parts of the world Soludo,
2008 Basic indicators in the Table below
show that Nigeria banking is coming out stronger compared to what it used to
be.
Table Basic Indicators of Banking Sector
Consolidation Results
|
|
Pre-
consolidation 2004
|
Post-
consolidation 2006
|
Growth (%)
|
|
Number
of banks
|
89
|
25
|
(71.9)
|
|
Number
of banks branches
|
3,382
|
4,500
|
33.1
|
|
Total
assets base of banks (N’Billion)
|
3,209
|
6,555
|
104.3
|
|
Capital
and reserves (N’ Billion)
|
327
|
957
|
192.7
|
|
Industry
capital adequacy ratio (%)
|
15.2
|
21.6
|
42.6
|
|
Ratio
of non – performing credit to total (%)
|
19.5
|
9.5
|
(51.3)
|
|
Source:
central bank of Nigeria. Abuja
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