THE IMPACT OF STRENGTHENING AND CONSOLIDATION THE NIGERIAN BANKING SYSTEM.
1.1 BACKGROUND OF THE STUDY
A business combination takes place when two or more business
organization come together to form a single economic unit. Business
combinations; could take the form of merger and acquisition where two or more
previously autonomous concerns come together under common control, there is a
formation of a new company, which acquires the (assets and possible the liabilities)
of two or existing business.
Merger and acquisition are the fastest ways for a business to
dramatically change its position in the market place (i.e. acquisition of a wide market area). Either
transaction can alter the fundamental dynamics of an organization almost over night by changing the scope or breath of
products services the business renders
as well as the model under which it competes.
When the board of directors of two companies agrees to come
together (amalgamate) in the interest of
both mergers is the right term. On the other hand, a company
wanting to gain control of the another business whose board not recommend the
change is said to be attempting to take over the company. Acquisition may be
defined as an act of acquiring effective control by one company over an asset
management of another company without any combination of companies when
management of acquiring company target company
mutually and willingly agree for the takeover, its called acquisition of
friendly takeover embrace the practice of merger and acquisition in the years
to come. This is so because the promulgation of the Nigerian investment
promotion commission decree of 1995, which gave foreigners and foreign
companies unfettered access to own up to 100% in Nigerian companies and bank. This decree repeated the exchange
control act of 1962 and Nigerian
enterprises promotion decree of 1988, which used to choke foreign investment
interests. The old ratio of 60% to Nigerians and 40% to foreigner stipulated by
Nigerian enterprises promotion act by
1988 changed. Armed with the new investment promotion commission decree of
1995, foreign stakeholders in Nigerian companies quoted and unquoted have been scheming and
maneuvering to exchange their status
for the better. The statistics
from securities and exchange commission shows that the share of foreign
shareholding in Nigeria
quoted companies increased from 25.14% in 1994 to 25.25% in 1995. The wholly
owned Nigerian Breweries Plc acquired Schweppers Nigeria Limited in 1995. In
all these, the glaring fact about mergers and acquisition in Nigeria is that
it is, at the moment dominated by companies that have common foreign
affiliation. It appears the common affiliation enable them to reach easier
agreements. On the other hand with the deregulation of the foreign exchange
policy of government, more companies are expected to enter merger and
1.2 STATEMENT OF RESEARCH
In a lecture deliver to a special committee of bankers by
professor Charles Soludo on July 6th 2004 titles “consolidating the
21st century, says the Nigeria
is the most populous black nation with the estimate population of 137 million
and she is one of the oil producing countries
in the world. However, Nigeria
economy still does not have infrastructure, to support large economic
activities. The banking sectors has been criticized for:
High leading rate
Sharp practice in the forex market
Low capital base
Most banks make profit through unethical means
which is their core banking business.
is in the view of this, the verdict of professor Charles Soludo, Governor of
Central Bank of Nigeria on 6th of
July 2004 that all
Nigeria bank are to beef up their
capital base from N2 billion to
N25 billion by the December 2005 will definitely help in this regard.
banking system however has continued to
be characterized by a number of
structural problems some of which
Low capital base: the average
capital base of Nigeria
banks is us and 10 million, which is very low compared to that of banks in other
developing countries similarly the aggregate capitalization of Nigerian
banking system was N2.67 billion a t the end of December 2003 is grossly low relative to the size of the Nigeria economy.
A large number of small banks with relatively few branches
dominated by a few bank out of 89 banks
as at December 2003, bank controlled 50.10% of the aggregate assets; 51.49% total deposit
liabilities ands 43.27% of the aggregate
Weak corporate governance
Over-dependence on public sector
deposit and foreign exchange trading.
The neglect of small and medium
scale private savers. The implication is
that its financial intermediate
function has become impaired while
depositors confidence has materially wanted. It was on the basis of this
concerns that the CBN Governor concerned a
special meeting on the July 16th 2004 to unfold a reform packages
for the resuscitation of the Nigerian
The present situation in Nigerian
economy makes it mandatory for the pooling together of resources in order to
avoid all problems mentioned above. Merger and acquisition are valuable way to harness
the synergies of similar organization.
OF THE STUDY
The aim of this research work is to bring to light the
comparative analysis of merger and acquisition in Nigeria banking sector.
To show the benefit of merger and
acquisition on Nigeria’s
To investigate the performance of bank prior
and after merger and acquisition.
To investigate into problems faced
by banks in mergers and acquisition.
To investigate into Nigeria’s actual experience during
merger and acquisition.
To investigate ways in which merger and acquisitions could be attractive to the Nigeria companies.
What benefit has been achieve in
terms of economic development in Nigeria under merger and
How have banks that go into merger
and acquisition preformed prior and after merger and acquisition?
How has the quality of financial
products available to customers been
after the mergers and acquisition?
What are ways to
make merger and acquisitions more
attractive to Nigerian companies?
What are the problems militating
against merge and acquisition is Nigeria?
OF THE STUDY
study on comparative analysis of
merger and acquisition in Nigerian banking sector will be carried out within the scope of platinum bank
Nigeria limited and Habib bank international (Bank PHB) prior from 2003 to 2005 and 2005 to 2007. Hence,
information data will apply mainly to the organization fixed
assets and liability.
1.6 SIGNIFICANCE OF THE STUDY
In this study those
that will benefit mainly are they:
Banks: the study intends to come up with
the means of survival,
growth for this present and future
bank in Nigeria by creating awareness of
the research vice seminars, workshop and
General public: the knowledge of
merger and acquisition and other business combination in the business community
as a way out of financial distress will enhance the nations
economic development in time of economic downturn and recommendation made will be of immense
importance to the bank under study.
Shareholders: the shareholders will
also gain from this consolidation exercise through effective allocation of
resources, which would equally increase their dividends and risk reduction
arising from improved management.
BACKGROUND OF THE STUDY
The board of director of platinum Bank Plc had been in
discussion and negotiation with the directors of Habib Nigeria Bank Plc on the proposal
to merger the banks incompliance with the central bank directives that all Nigerian
banks most raise their shareholders funds to N25 billion by the 31st
December 2005 as the deadline. The merger was effected through a scheme of
merger (the scheme) under section 100 of the investment and securities Act
Habib Nigerian bank was incorporated as a private limited
company in Number 1982. The obtained banking license on March 7, 1983 and commenced on 16th may, 1983. The bank converted a limited
liability company on September 20, 2003. it had 70 offices (made up
64 branches and 6 cash offices) spread across the country.
Platinum bank plc was incorporate as a nationwide merchant bank limited
on 9th February 1989 and. On 18th September, 1996,
the bank stopped operation and was taken over by central bank of Nigeria
as a going concern on August 3rd 2000 and thereafter changed its
name to platinum bank limited on 22 September, 2000 and commerce operation on 1st
November 2000 as a full-pledge commercial bank.
During the merging process, it was proposed that the entire assets, liabilities
and undertaken including real property
and intellectual property rights of Habib be transferred to platinum Habib and
that entire share capital of habib is canceled. Habib was
then dissolved without winding up. Platinum upon the scheme becoming effective
shall be renamed platinum habib bank plc.
The two bank that merged on 30th November, 2005
are both public limited liability companies. The two banks shall complimentary
products and service line, as such the proposed merger should bring about
significant efficiencies and an expanded product and customers range synergies
resulting from the merger should ensure better return to all stakeholders, the
merger will return in a robust new fully complaint with CBN’s new minimum capital requirement of N25 billion.
Is a combination of two or more companies into an excising company. All except
one loss their identity in a merger through absorption.
is a combination of two or more company into a new company. In this form of
merger all companies are legally dissolved and a new entity is created. In a consolidation the
acquired company transfers it’s asset
liabilities and shoes to the acquiring company for cash or exchange of share.
It has been defined as an act of acquiring effective control by one company
over assets or management of another company without any combination of companies.
Is defined as the acquisition of company sufficient share in other company.
Tow or more companies or organization coming into another one firms exceeds
that of its previously separated firm.
CAPITAL: the total
value of resources that is invested or is
used to start the business.
The buying and selling of foreign currency
An official rule made by the government
or some other authority.
Bodies having a power to control an area
of business or industry and make sure that it is operation fairly.
MERGER: Merger is
the coming together of or more companies under a single head or