Merger and Acquisition as a Survival Strategy in

the Nigeria Banking Industry

Dr. (Mrs.) R. O. OLUITAN

Department of Banking and Finance, Lagos State University, Lagos, Nigeria

Michael Oluwafemi OLOWOLAFE

Department of Industrial Relations and Personnel Management, Lagos State University,
Lagos, Nigeria
E-mail: mykelacademic@gmail.com

Oluwafolake Elizabeth OLAOMO

Department of Banking and Finance, Lagos State University, Lagos, Nigeria

Abstract
This research work takes an explorative investigation on the issue of Merger and
Acquisition as a surviving strategy in the Nigeria banking industry which further
shrinks the number of banks in Nigerian to twenty five (25) Mega Banks after
recapitalization as at January 1, 2006. The research used secondary data sources to
expose the status of selected banks in the post-consolidation era and based on the
finding the bank’s shrink will let Nigeria enjoy maximum patronage of foreign investors
and fully open Nigerian economy to the world according to the Nigerian Financial
System Strategy – FSS 2020, with a vision of which to be the safest and fastest growing
financial system amongst emerging markets and a mission to drive rapid and
sustainable economic growth primarily in Nigeria and Africa.

Keywords: Banking industry; Nigerian; Mergers; Acquisitions.

1. Introduction
Banks represents a significant and influential sector of the Nigerian economy and the
International economy at large, and plays a major role in maintaining confidence in the
monetary sector. There is therefore considerable and widespread interest in their
management and performance. According to Ebhodaghe (2004), through financial
intermediation, banks can facilities capital formation and promote economic growth by
operating in safe and sound manner. This means that banks are expected to ensure
prudent management of assets and guarantee the safety of customer’s deposits/fund.
The sharp practices of some banks coupled with unsoundness of others culminating in
widespread financial sector distress and losses to deposition have elicited deep
concerns of the monetary authorities and the general public. Hence, it cannot be
disputed that the regulatory/supervisory authorities have to vigorously carry out their
financial sector regulatory work in order to achieve the goals of protecting depositors
(basic goals), ensuring monetary stability, encouragement of an efficient and
competitive financial system, and protection of customer interest, certain aspect or
financial relationship.
It is against the above background that the Central Bank of Nigeria recently made
pronouncements its first phase of banking sector reforms designed to ensure a
diversified, strong and reliable banking sector which will ensure the safety to depositors’
money, play active competitive players in the African and regional and global financial
system. On July 6, 2004, in an address delivered to the special meeting of the banker’s
committee in Abuja, the governor of the Central Bank of Nigeria, Prof. Charles Soludo,
in his statement made a case for mergers and acquisitions as instruments for banking
soundness, especially in the light of global and emerging market trend, which reflect
increasing cases of mergers and acquisitions in the banking industry. This trend
according to him has been influenced by factors such as prospects for cast saving due
to economic of scale as well more efficient allocation of resources enhanced efficiency in
resource allocation; and risk reduction arising from improved management. He further
made the point that the voluntary embark on consolidation in line with the global trend
has necessitated the need to consider the adoption of appropriate legal and supervisory
frameworks as well as a comprehensive incentive packages to facilitate mergers and
acquisition in the industry as a crisis resolution option, and to promote the soundness,
stability and enhanced efficient of the system.
For clarity, we can summarize the major problems of many Nigeria banks as follows:
a. Weak corporate governance evidence by high turnover in the Board and management
staff, inaccurate reporting and non-compliance with regulatory requirements, falling
ethics and de-marketing of other banks in the industry;
b. Late or non-publication of annual accounts that obviates the impact or market
discipline in ensuring banking soundness;

c. Gross insider abuses, resulting in huge non-performing insider related credits;

d. Insolvency, as evidenced by negative capital adequacy ratios and shareholders’ funds
that had been completely eroded by operating losses;
e. Weak capital base, even for those banks that have met the minimum capital
requirement, which currently stands as N1.0 billion or US$7.53 million for existing
banks and N2.0 billion or US$15.06 million for new banks, and compared with the
RM2.0 billion of US$15.06 million for new banks, and compared with the RM2.0 billion
of US$526.4 million in Malaysia.

f. Over-dependency on public sector deposits, and neglect of small and medium class
savers.
As a solution to the problem of distress in the banking sector and to curtail other
problems mentioned above, Central Bank of Nigeria introduces the concept of mergers
and acquisition in the banking sector; the governor of Central Bank of Nigeria is more
than convinced that merger and acquisition by banks will go a long way in making the
banks stronger. He said the introduction of mergers and acquisition in the banking
sector will create very large and complex financial institutions that increase the demand
for information, improved transparency and market discipline and later lower individual
firms’ risk and financial stability in the financial system.

2. Literature Review

Introduction
Banking business in Nigeria can be traced to August 1891 when Elder Dempster and
company convinced the Africa banking consortium, which was, then already in South
Africa to establish an office in Nigeria. Events from that date to the present time have
revealed that more often than not, the interest in the Banking Industry gets
restructured from time to time.
In 1958, the Central Bank Ordinance was promulgated to establish the Central Bank of
Nigeria and place it at the helm of affairs in the banking industry. Legislation was
further consolidated by the banking act of 1969 which was replaced by the CBN decree
24 of 1991 and the Bank and other Financial Institution Decree (BOFID) 25 of 1991
industry reformation and restructuring had been an outgoing occurrence as successive
legislation increases the minimum Capital base of Banks from time to time.

Definition of Merger and Acquisition

In general use a "Merger" is viewed as the situation where two or more companies
combine together to form a large business organization. On the other hand, an
"Acquisition" involves the purchase of a controlling Share in another Company. Merger
occurs when two firms combined to form a third company. An acquisition is “a
transaction or a series of transaction whereby a company takes, control over the assets
of a company either directly or indirectly by obtaining control of the management of the
company. Acquisition occurs when there is an offer by the acquiring company to buy all
the shares of the proposed acquired company.
The company and Allied Matter Act (CAMA) sec. 590, 1990 as amended defined "merger'
as any amalgamation of the undertaking of any part of the undertakings of interest of
two or more companies or the undertaking or part of the undertaking of one or more
companies and one or more bodies corporate. Adegbite (1989), on the other hand
contents that merger could be described as an arrangement whereby the assets and
business of two or more companies become vested in and are carried on by one
company (which may or may not be one of the original company) which has as its
shareholder of the merging companies. Utomi (2000) defined merger and acquisition as
"a process by which corporate entities not satisfied with organic, internally generated
growth seek to combine the resources of independent corporate entities in expectation
that synergy in their assets and other compatibilities and vistas that may be unlocked
by the combination will facilitate the creation of value for customer”. Walt’s (1980)
defines acquisition as "a situation whereby a party gains control over a company by
acquiring a controlling interest in its voting share capital. This is also known as
takeover and can be of two form viz: Holding Company arrangement: Whereby the two
companies retain their separate identities but the acquiring company (the parent)
exercises control over management polices of the acquired company (the subsidiary) by
majority shareholding or other form of controlling the board.

Types of Mergers and Acquisitions

According to Stewart (2001) merger is essentially a corporate growth strategy by

external means rather than internal development of new products, markets and
technologies. In his view, Iyeiegbuniwe (2005) classified merger into three main types:
a) Horizontal Merger
In horizontal merger, the merging company are in the same line of business and hence
in competition with each other. The acquisition of Schweppes by Nigeria Bottling
Company and Meriden Equity Bank by Intercontinental Bank Plc are examples of these
types of merger. Horizontal mergers results in reduced competition as will often-induced
antitrust legislation.
b) Vertical Merger
In this type of merger, the affected companies are not in competition but have a buyer
seller relationship. In Intercontinental example or vertical merger is the acquisition of
Superior Oil Company by Mobil Corporation in 1984. The latter is a major international
of company that is quite strong in refining and marketing owned large and gas reserves
buy no refining and marketing operations. The merger of the two companies resulted in
a more balanced and integrated operations.

c) Conglomerate Merger
In this case, the companies involved neither is not in competition with each other (not
in the same line of business) nor do they have buyer seller relationship. The acquisition
of Lipton Brothers Plc and the acquisition of West Africa Provincial Insurance Company
by Intercontinental Bank Plc are example of conglomerate merger.

Reasons for Mergers and Acquisitions

According to Zweig (1995) several reasons notably the following, are often given for
merger and acquisitions.
a) Economic of Scale
The quest for economies of scale is often the rationale for the merger. This is
particularly true for vertical and horizontal merger. Increasing the scope of operations
via a horizontal merger is believed to bring about benefits (increased cash flow)
accruing from shared centralized facilities and resources such as corporate
headquarters and top management, marketing promotions, research and development.
This means a quest for spreading to overhead expenses. There are indications that
European companies, faced with competition with giant American companies, engaged
in mergers with this type area of raw material sourcing. It is frequently claimed that
mergers and acquisitions can produce greater operating revenues from improved and
integrated marketing activities; such improvement can be made in (a) previously
ineffective media programming (b) weak existing distribution network and (c)
unbalanced product mix.
b) Management Efficiency
There are always companies whose profit could be improved by operating and /or
financial management. Such companies are natural merger for companies that have
more efficient management. It appears that we might experience this kind of mergers in
the impending mergers in financing services industry. As the economy gets more
competitive some company’s candidates with poor management will fall on bad times
and would become candidates for merger or else die. Even without the twenty five
billion capital requirements, deregulation and intensified competition in the financial
service industry under universal banking regime, suggest that we witness merger
activities in the industry in future. This is quite possible if the affected companies
appreciate the benefits of merger, as indicate here. However, we should bear in mind
that there are appear to exist natural cultural barriers to merger and acquisition in
Nigeria.
c) Surplus Fund
Companies in nature industries, penetrating a substantial amount of cash may not
have enough profitable investment opportunities. What should such a company’s
investment strategy beg it could invest in marketable securities but this is at best a zero
NPV investment? On the other hand, payment of the fund in extra dividend means
increase in income tax payments by the shareholder. In such circumstances,
acquisition of other companies with investment opportunities is s good corporate
strategic move.
d) Unused Debt Capacity
Some companies do not use as much debt as they ought to. This creates unused debt
capacity and could make such a company attractive for acquisition by companies that
can profitably utilize the unused debt capacity to generate increased earnings.
e) Unused Tax Shields
The existence of unused tax shield is yet anther inducement to acquire a company.
When a company has tax loss carryover, which it cannot use, it becomes an attractive
acquisition candidate for a company that has enough taxable profits to utilize the tax
shield and thereby reduce its taxes and increase profits after tax. In the banking
industry distressed banks seem to be such candidates.
f) Complementary Resources
Some companies acquire others to make better use of existing resources or to provide
the “missing” ingredient for success. The target company may have a unique product
but lack the engineering and marketing capabilities to produce and market it on large
scale. It is quicker and cheaper for such a company to merge with a company that
already has a simple engineering and marketing skills, rather than attempt to develop
these skills from scratch. The two companies have complementary resources each has
what the others needs and so can make sense from them to merge. The two companies
will be worth more together than apart because each acquires something it does not
have and gets it cheaper than it would acts on its own.

Stages of Mergers and Acquisitions

Saudarsanam provides a five-stage model that will result in successful pursuit of

synergistic gains from Mergers and Acquisitions:
a) Corporate Strategy Development
Corporate strategy development is concerned ‘with ways of optimizing the portfolios of
businesses that a firm currently owns, and how this portfolio can be changed to serve
the interests of the corporation’s stakeholders’.
b) Organizing for Acquisition
The firm lays down the criteria for potential acquisitions consistent with the strategic
objectives and value creation logic of the firm’s corporate strategy and business model.
c) Deal structuring and Negotiation
According to Saudarsanam, this stage of Mergers and Acquisitions involves: (a) valuing
target companies, taking into account how the acquirer plans to leverage its own assets
with those of the target; choice of advisers to the deal; (b) obtaining and evaluating as
much intelligence as possible about the target from the target as well as other sources
through due diligence; (c) determining the range of negotiation parameters including the
walk-away price negotiating warranties and indemnities; negotiating the positions of
senior management of both firms in the post-merger dispensation; and (d) developing
the appropriate bid and defense strategies and tactics within the parameters set by the
relevant regulatory regimes.
d) Post-Acquisition Integration
This stage involves the combination of the distinct organizations into one, resulting in
changes in both the target and the acquirer, to deliver the strategic and value
expectations that informed the merger.

Benefits of Mergers and Acquisitions

a) Operating Economics and Economics of Scale
The teaming up of efforts by both companies could produce increase in output, while
average cost declines result in improved efficiency for the company. Merger result in
economics of scale because there is increase return to scale due to the factor of the
lager size. Also the arrangement crystallizes into a reduced cost per unit of production
and thus a higher level of profitability.
b) Diversification
Mergers also result in risk diversification; a company in one line of business may
acquire another in an immolated line of business (conglomerate merger). This is thus a
portfolio built up along the line of portfolio theory. This philosophy seeks to develop
asset of interrelated business- that provide reasonable balance and stability within the
organization's overall portfolio theme.
c) Skills and management Acquisition
Mergers and acquisition could also be undertaken to acquire competent and well
qualified personnel especially in the field of management research and development; in
order to enhance products quality and output. If a firm that is unable to hire top qualify
management and it has no prospect of staff coming up through the ranks. It may seek a
combination with another company having aggressive and competent management.
d) Tax Gains
Mergers could also be arranged to achieve tax advantage. A group of associated
companies could merge to achieve a tax advantage usually; the transfer of share is
treated as disposed of share and hence qualified for capital gain tax.

Merger and Acquisition as a Survival Options for Banks

Merger and acquisition is considered as a good survival option today because it

presents a gloomy situation for the survival of a majority of the institutions therein. The
finance industry is hamstrung by a number of factors, which have mergers and
acquisition as a viable option for survival. The extent of distress in banking industry is
shown below.

Distress in the Banking Sector

The distress in the banking sector has become a topic of intense national discourse
since the early 1990s when it become glaring to the general public and the regulatory
authorities that some banks were truly distressed. Banks have experience deterioration
in their financial condition as a result of the operating environment since the
introduction of the Structural Adjustment Programme (SAP) in 1986. The features of the
operating environment since 1986 are as follows:
a. Number of banks increased form 40 in 1985 to 121 in 1992 representing an over
200 percent increase in (7) years.
b. Rapid de-regulation of the banking industry with the introduction of the
Structural Adjustment Programme (SAP) in July 1986.
c. Increase in the awareness of the banking public to the need for prompt and
efficient services at a minimal cost.
d. Changes in the accounting and monetary policy procedures, especially the
introduction of the prudential guidelines which require banks to maintain good
qualify loan portfolio with significant effect on the lending activities of banks.
The statistics on the distress in the industry from official sources (mainly CBN) reveals
the dangerous proportion the problem has assumed in the economy. For instance the
number of distressed banks increased from 35 in 1993 to 56 by December 1994. In
September 1995, the Central Bank of Nigeria (CBN) took over seventeen (17) distressed
banks and, dissolved the board of one commercial bank.
Another issue that is likely to accentuate the level of distress and bank failures in the
country is the order by the Central Bank of Nigeria in July 6, 2004 in an address
delivered to the special meeting of the bankers committee in Abuja, the Governor of the
Central Bank of Nigeria (CBN) Charles Soludo, announced that the minimum capital
requirement for banks operation in Nigeria should be N25 billion, with full compliance
before 31st of December 2005. The CBN envisaged that this policy would stimulate
consolidation activities in the banking industry. This order has jolted many banks and
there is no doubt that the enhancement of the minimum paid-up capital for banks will
subject the banking sector to further stress and strains, which could culminate in
merger and acquisition activities in the industry. (Nigeria Inter-continental Merchant
Bank Ltd. 1997 Annual Report and Accounts, Pandy, (2000).

3. Methodology, Analysis and Results

This research work covers the period from 2006 to 2010. Annual data for the period
was collected and employed for the analysis. The population of study is all the twenty
five banks making up the Nigerian banking sector. The data employed in the study was
collected from secondary sources, such as the Annual Reports and Statement of
Accounts and the Statistical Bulletin and The Bullion of the Central Bank of Nigeria
[CBN].
However, The samples used were drawn from the twenty five banks in Nigeria that are
further classified into two category namely the merged banks consisting of Unity bank,
UBA bank, Access bank, FCMB, Skye bank; and also the non-merged bank consisting
of GTbank, Zenith bank, Ecobank, Stanbic bank, Citi bank. The sampling procedure
uses extra method of representatives by first identifying some characteristics that are
being researched and then using these characteristics as a basis for further random
sampling of the entire population. The data obtained were tested using the Ordinary
Least Squares (O.L.S) regression analysis statistical method.
The first model specification as presented below assumes a linear relationship between
mergers and acquisitions with survival of Nigeria banking industry.
The study augments for merger and acquisition specifications is based on conditional
convergence by adding several debt and capital base growth variables with the Nigeria
banking industry survival as the dependent variable to capture the situation. Also
appears some growth control variables, which includes the investment rate, the debt
rate, the bank growth rate, (all in logarithm forms) and a number of other variables to
control for differences in total factor productivity (openness and annual statement
balance), and exogenous shocks (terms of transaction).

Yt = 0 + 1XAt + 2Vt + 3Lt + 4DEt + 5DDt + e

Y representing the “bank growth”, XA representing “capital base growth”, V representing
“investment rates”, L representing “the loan rate”, DE representing the “external debt”,
DD representing “domestic debts”.
Taking the logarithm form of the equation will yield equation below with “In” standing
for the natural logarithm
LnYit = LnXAt + LnVt + LnTt + LnDEt +LnDDt
The study examines the Non-Stationarity of the series under consideration using
standard Dickey Fuller and Augmented Dickey Fuller statistic. To confirm the presence
of one and only one unit root in our data series, an augmented DF tests on their first
 differences were run. Evidence supports the presence of one and only one unit root in
each series which in Engle-Granger terminology means that they are all integrated in
order on [Dutt and Ghosh 1997].

ADF Tests of Stationarity for all variables

Variables ADF Value Critical Value Order of Integration Level of Sig.
LnY -6.255646 -3.6661 I(1) 1%
LnXA -3.606293 -2.9627 I(1) 5%
LnV -6.372368 -3.6661 I(1) 1%
LnL -4.504983 -3.6852 I(1) 1%
LnDE -4.125854 -3.6661 I(1) 1%
LnDD -2.784684 -2.6200 I(1) 10%

Using Ordinary Least Squares (OLS) regression method the following estimated equation
was obtained with Econometric Views Computer Package [E-views].

Table 1: LIST OF MERGED BANKS

Name of Capital base investment loan rate external domestic Constituent

bank (N Billion) rates (N Billion) debt debts institutions
(N Billion) (N Billion) (N Billion)

Unity Bank 30 20 17 7 12 Intercity Bank, First Interstate Bank,

Tropical Commercial Bank, Pacific
Bank,
Centre Point Bank, NNB International
Bank, Bank of the North, Societe
Bancaire & New Africa Bank

United Bank 50 19 27 9 25 United Bank of Africa & Standard Trust

Bank
for Africa

Skye Bank 37 26 11 6 41 Prudent Bank, EIB International,

Cooperative Bank, Bond Bank &
Reliance Bank

First City 30 14 26 7 34 FCMB, Cop. Development Bank &

NAMB Limited
Monument
Bank
Access Bank 28 11 10 10 38 Access Bank, Capital Bank Int’l and
Marina Bank`

Source: Central Bank of Nigeria’s reports on merged banks (2010).

Since :

Yt = 0 + 1XAt + 3Vt + 4Lt + 5DEt + 6DDt + e

 Result
Dependent Variable: LnY
Variable Coefficient t-Statistic Prob.
C 1.450178 2.208189 0.0359
LnXA 0.663597 5.306417 0.0000
LnV 0.005923 1.011603 0.0909
LnN 0.739059 1.118142 0.0782
LnDE -0.248872 0.742632 0.0673
LnDD -0.031674 -0.681628 0.0513
Ecm 1 -0.74E-05 2.877464 0.0077
R-squared 0.836759 Mean dependent var 3.789830
Adjusted 0.818621 S.D. dependent var 0.418337
R-squared

F-statistic 46.13309
Durbin-Watson 1.733790 Prob. (F-statistic) 0.000100
stat

Interpretation
The values of R2 0.83 and the adjusted R2 0.81 in the above regression estimates
indicate that our model adequately explain the influence of merger and acquisition
using the variables given above on bank’s survival in Nigeria.
The value of Durbin-Watson [DW] Statistic in the regression results is 1.73. This was
found to be within the normal region which fall within the determinate region of the
study that is (1.5<DW<2.5) and imply that there is negative first order serial auto-
correlation among the explanatory variables.
The t-statistics confirm that the coefficients of our model are significant at 5% level of
significance. The F-Statistics which was 46.13 thereby confirming that all the variables
in our model sufficiently explain the impact of merger and acquisition as a survival
strategy in the Nigeria banking industry.

Table 2: LIST OF NON-MERGED BANKS

Name of bank Capital base investment loan rate external domestic Constituent
(N Billion) rates (N Billion) debt debts institutions
(N Billion) (N Billion) (N Billion)

Guaranty Trust Bank 34 19 12 4 17 Guaranty Trust Bank

Ecobank Over 25 13 7 8 4 Ecobank

Stanbic IBTC Bank 35 16 11 6 12 Standard Chartered Bank

Citibank 25 19 6 2 3 Nigerian International Bank

(City Group)
Zenith Bank 38 26 17 5 22 Zenith Bank

Source: Central Bank of Nigeria’s reports on merged banks (2010).

Since :

Yt = 0 + 1XAt + 3Vt + 4Lt + 5DEt + 6DDt + e

Result
Dependent Variable: LnY
Variable Coefficient t-Statistic Prob.
C 2.571561 2.619166 0.0436
LnXA 0.485661 2.161853 0.0443
LnV 0.003090 1.022814 0.0820
LnN 0.172394 1.572909 0.0332
LnDE -1.504846 2.972888 0.0435
LnDD -0.383236 -1.115928 0.0291
Ecm 1 -0.12E-07 2.755343 0.0055
R-squared 0.811867 Mean dependent var 3.796415
Adjusted 0.707349 S.D. dependent var 0.398510
R-squared

F-statistic 17.767715
Durbin-Watson 2.027656 Prob. (F-statistic) 0.000101
stat

Interpretation
The values of R2 0.81 and the adjusted R2 0.70 in the above regression estimates
indicate that our model adequately explain the influence of merger and acquisition
using the variables given above on bank’s survival in Nigeria.
The value of Durbin-Watson [DW] Statistic in the regression results is 2.027 which
show that the variables are not serially correlated. This was found to be within the
normal region which fall within the determinate region of the study that is
(1.5<DW<2.5) and imply that there is negative first order serial auto-correlation among
the explanatory variables.
The t-statistics confirm that the coefficients of our model are significant at 5% level of
significance. The F-Statistics which was 17.76 thereby confirming that all the variables
in our model sufficiently explain the tested model.

4. Summary of Analysis

The above results are attempted to show the impact of merger and acquisition as a
survival strategy in the Nigeria banking industry. In Essence, it should be noted that
the Analysis is divided into two Parts, the Merged Banks and the Non-Merged Banks.
In the merged bank, the result shows that the variables are able to impact on the bank
growth.
In the non-merged bank, the result also shows that the variables also impact on the
bank growth but not as that of the merged bank which their capital base is boosted in
order for them to fulfil their various obligation.
The result has shown that the survival of Nigeria banking industry is affected by both
merger and acquisition level. In other words bank survival in Nigeria is merger and
acquisition elastic.

Conclusion
From the study analysis carried out the following conclusions are drawn mergers today
are altering the nature of competition in industries, yet succeeding well-structured
studies calculated that 50 to 75 per cent of acquisitions actually destroy shareholder
value instead of achieving cost and or revenue benefits.
There are five causes of failure:
a) Poor strategic rational, or a poor understanding of the strategic levers.
b) Overpayment for the acquisition, based on overestimated value
c) Inadequate integration planning and execution
d) A void in executive leadership and strategic communications
e) A serve cultural mismatch
The absence of strong role by institutional investors in Nigeria capital market and
strong influence and domination of various interests in the industries in Nigeria have
largely accounted for the limited number of merger and acquisitions in the country.
This situation would be different if significant shareholdings are held by institutional
investors who have the resources and inclination to hold management accountable to
shareholders as in obtainable in other developed economies.
Having considered various perspective or research studies on merger and acquisition as
a survival strategy in the Nigeria Banking Industry, it is evidence that there is economic
justification to merger and acquisition particularly at this period of Nigeria’s economic
down turn.
By the time the necessary regulation reform like universal banking are entrenched and
the national economy is fully deregulated including the full implementation of the
privatization programmed of the government, there is no doubt that a level of playing
ground will be in place and the economy will become vibrant for the realization of the
benefits of merger and acquisition. The scenario will no longer be only for survival but
for the growth of the banking industry and the economy as a whole.
However, strategic rationale is crucial. And considered among others, the most
perennial cause of failure in pre and post merger activities.
Mergers and acquisition in the banking sector led to:
a) Maintaining or acceleration of company’s bank’s particularly when the internal
growth is constrained due to paucity of resources.
b) Enhancing profitability, through cost reduction resulting from economies of scale,
operating efficiency and synergy.
c) Diversifying the risk of the banks, particularly when it acquires those businesses
whose income streams are not correlated.
d) Limiting the severity of competition by increasing the company’s market power.

Recommendations
A clear strategic rationale for an acquisition is critical, but not enough to guarantee a
successful deal and merger integration. The rationale helps to identify the right target
and set boundaries for negotiations, but the hard work remains of bringing two
companies together effectively.
Nevertheless, the “why” inform the “how”. The right strategic rationale will inform the
preparation and valuation of the merger. The strategic rationale should also inform
what leadership and communication style to adopt and how to plan for post-merger
integration, including cultural integration.
“Being clear on the deal’s strategic logic is critical both for pre and post-mergers
activities”. In acquisitions seeking to gain scale, pre-merger planning can be done by
the numbers. One can, in advance, calculate goals for combine market share and cost
reduction, plan steps to achieve them, and create measures of performance
improvement. This type of merger places great demands on a chief executive’s ability as
a manager to cope with complexity. The task may not be easy, but at least the leader
can craft a plan before the transaction and executive it after the merger.
But in holder mergers, where parties seek to redefine their industries, the numbers may
not be as precise. The companies involved will have a post-merger model for operations.
However, the model will charge as industry rules change and as competitors react, in
such a profoundly uncertain environment, vision is critical and must come from the top
of the organization. A strong leader must cope with flux by confidently and effectively
communicating the strategy and vision. The post-merger integration plan will have to be
much less detailed and much more flexible that that of scale transaction, leaving room
for leadership to adopt its message to a rapidly evolving competitive environment.
In short, a transaction’s strategic rationale is ground zero for planning and your
foundation for capturing the value that spurred your acquisition.
Summarily, In order to make merger and acquisition a survival option in Nigerian
Banking Industry, the following strategies are recommended.
(i) Professionals with integrity and certified academic qualification and experience
should be appointed to bank at the management level for proper decision making.
(ii) Investors should be notified and advised on the benefit of merger and acquisition
and its synergistic effects as it services as the best the only survival alternative to
liquidation.
(iii) The Stock Exchange Commission as a regulatory agency should be given power to
determine the appropriate criteria for desirable and understandable merger and
acquisition.
(iv) The Central Bank of Nigeria, which is the apex of the banking institution, should
ensure that the procedures of merger and acquisition by banks are properly handled
with the signing of memorandum of understanding.
(v) Other ill- banks should consider merger and acquisition as a survival option for
them in other to protect the investors and customers at the banks from the loss of
capital, deposits and share holding as a result of distress or liquidation.

Reference
Abidogun, A.A (1985): “Merger and Acquisition: The Nigeria experience situation”
Paper presented at Sec sponsored symposiums, NIIA, October 16 th

Akarmikor, G.A (1990): “Merger and Acquisition: The Nigeria experience situation”.
Paper presented at SEC sponsored symposiums, NIIA, October 16 th an
addressed delivered by the CBN Governor at Retreat organized by CBN on September
17, 2004

Brown, K (2001): “Deal exposes bleak future of OC business” The Wall Street Journal,
11 December

Cary, D. (2000): “Lessons from master acquires as CEO round table on making mergers
succeed” Harvard Business Review, Vol. 78, May, P. 147

CBN Annual Report (2004): Central Bank guidelines on Consolidation CBN

Bulletin August 5, 2004

Charles, R. Moyer (1981) : “ Contemporary Financial Management” New York,

West Publishing Company,

Ebiringa (2001): Mergers and Acquisitions as Survival Strategy. Speech

delivered at the school of Management and Technology, Federal University of
Technology, Owerri.

EFT (2001): HP co-founder’s family seeks to oppose merger. Electronic Engineering

Times, 12 November

Farzad, R. (2000): “A table worth losing” Smartmoney.com, 5 December

Financial Standard, Special Report on Merger and Acquisitions. 29

November, 2004, p4

Iyeigbuniwe, W. (2005): The Rationale for types of Mergers and Acquisition. Lagos.
University Press Limited Lagos

Kidd Stewart J. (2001): “Imperfect partners” most achieve competitive trail peers
Tribune 18th March

Larson, H.J (1983): Statistics: An introduction, Kriege Michael Keenan and Lawrence,
J. Whites (1992): “Merger and Acquisition” Toronto U.S.A; Lexington Books

Prince Abbi S. Green (2001): “Managing post merger integration to

achieve competitive advantage” Business Week, 30 November

Report of the International Labour Organization (ILO) at the Tripartite Meeting on

the Employment Impact of Mergers and Acquisition in the Banking and
Financial Services Sector General 2001, p. 7

Singh, Habir (1999): “Creating value in Post Acquisition Integration Processes”

1998, Wharton School: Accenture M & A study 1999

Soludo, C. (2004): Consolidating the Nigerian banking Industry to meet the

development challenges of the 21st century.
UNCTAD (2000): “Impact of Cross-Border Mergers and Acquisition on
development and policy issues for consideration, note by UNCTAD Secretariat
(TD/B/COM.2/EM.7/2)

William, W. Albert and Hoel Segal (1986): “The Corporate Mergers” Chicago: The
University of Chicago Press

Zook, C. and Allen, J (2001): Profit from the Core: Growth Strategy in an era of
Turbulence, Harvard University School Publishing, and Boston MA

Zweig, P.L (1995): “The case against Mergers” Business week, 30 October