The Nigerian Banking sector has suffered problematic times since 1999, when the sector was facing problems of corporate governance as identified by the Central Bank of Nigeria. However, CBN started embarking on a comprehensive reform agenda since that time and many measures have been taken to bring the sector on the right track by imposing an IMF Code of Good Practices on Transparency in Monetary and Financial policies. Mergers and Acquisitions (M & A) is a process “where two or more companies are combined to achieve certain strategic and business objectives”. Therefore, Merger and Acquisition seems as a means of achieving business and strategy objectives. The study examined the differences of financial features among bidder and target banks in the Nigerian commercial banking sector. The findings of paired t-test on financial features among bidder and target banks show that bidders and targets’ mean of each variable and financial features between bidder and target banks for 3 years (2002-2004) average indicates that bidders and targets’ mean of each variable are statistically different at 5%. Similarly, the findings for bidder banks’ performance of 5 years (2000-2004) before and 5 years (2006-2010) after mergers and bidder banks’ performance of 3 years (2002-2004) before and 3 years after mergers (2006-2008) are also statistically different at 5%. The study recommends that managers of large and efficient banks seeking to go for merger and acquisition should halt from targeting small and less efficient banks because it will lead to operational inefficiency.
Mergers and Acquisitions (M & A) remains a subject of concern to business, industry and scholars [
An array of studies showed that mergers and acquisitions has a significant impact on corporate businesses, however, few studies were conducted on the impact it has on individuals acquiring shareholders particularly in terms of financial gain. Indeed, although the transformation of M & As is not a straight forward process, and as a remediation tool has been transformed in recent years [
On the other hand, certain studies found that the average mergers and acquisitions waves have yielded unprofitable outcomes because they were unable to achieve their desire objectives [
The Nigerian Banking sub-sector has suffered problematic times since 1999, when the sector was facing problems of corporate governance as identified by the Central Bank of Nigeria. However, CBN started embarking on a comprehensive reform agenda since that time and many measures have been taken to bring the sector on the right track by imposing an IMF Code of Good Practices on Transparency in Monetary and Financial policies, the need to concentrate on developing the human resources capacity and adaptation of modern technology such as computerising the banking system in order to enhance efficiency and effectiveness in fulfilling the modern and international requirement, embarked on continuing supervising and regulating a role to ensure effective corporate governance by ascertaining that proper and qualified individuals are appointed into both the top management and boards of the respective financial institutions and also ensuring any unethical or profession misconduct would serve sanctions accordingly [
However, in spite of all the above measures, financial institutions were still characterised by their inability to pay workers’ salaries and benefits, very low profit margins or even losses, inability to carry out debts services, retrenchment, low productivity, etc. [
Consolidating and strengthening the Nigerian banking system: This was to create a strong, reliable and diversified banking sphere which would ascertain the safety of deposits, influencing economic development and equally making the sector competent and capable of competing regionally and globally in the financial world. These would influence high returns to the investors and serve as an effective source of finance to businesses in the country. An effective banking system would normally attract foreign capital investments which would eventually influence general development in Nigeria. However, a position would place the country as a good competitive player in the 21st century. As witnessed in recent past, there has been financial globalisation of the banking system through mergers and acquisitions [
CBN [
However, the adoption of Mergers and Acquisitions might be necessary for the consolidation and strengthening of Nigerian banks. The reform agenda includes―the stability of exchange rate and price and financial sector diversification [
The Central Bank of Nigeria issued an ultimatum, with a time limit 18 months, to all the commercial banks in Nigeria to have a minimum capital requirement of N25 billion (Nigerian Naira) [£53.8 million GBP] that is, before the end of 2005. In view of this, the CBN collaborated with certain institutions such as NDIC, SEC, NSE, the financial authorities and legal/regulation frameworks in order to facilitate the consolidation process. Eventually, the recapitalisation exercise rendered mergers and acquisitions as necessary instruments of consolidation for most of the banks, because at the end of 2005, only 25 banks survived out of 89 and the majority made it through regulatory mergers and acquisitions but their number later fell to 24 via market-induced merger and acquisition. Of the 2900 branches of the 89 Nigerian banks, only 24 branches succeeded, and these have 5500 branches [
The CBN’s last phase of the Nigerian banking reform attempts to address issues of diversification, including programmes to encourage the emergence of regional and unit or specialised banks [
However, the distress in the Nigerian banking system was amplified by the contagion as a liquidity crisis and in view of such CBN improvised several measures to deal with the development. Therefore, Central Bank of Nigeria responded to the development by improvising the following measures:
・ 10.25 per cent to 9.75 per cent reduction in Monetary Policy Rate (MPR).
・ 4.0 per cent to 2.0 per cent reduction in Cash Reserve Requirement (CRR).
・ 40 per cent to 30 per cent reduction in the Liquidity Ratio (LR).
・ Option issued to the interested banks to restructure their margin loans up till 2009.
・ 360 days extension grace of lending facilities was issued to banks.
・ Expanded discount window was introduced in order to allow additional instruments.
・ Liquidity mopping-up was halted or suspended in 2008.
・ A serious emphasis was stressed on the code of corporate Governance promulgated by the CBN in order to promote accountability and transparency in all the banks in the country.
・ The CBN reviewed a contingency plan for taxonomic distress in banks.
Despite the reform efforts, however, the Nigerian banking sector system remained fragile, as the measures failed to address their challenges. Problems in nine of the 86 Nigerian banks, for example, could not be solved through liquidation thus as argued by Sanusi [
In addition, the executive directors of those banks were withdrawn and replaced with technical expertise. All of these are with the goal of curtailing corruption and improving the efficiency and performance in the banking sector. There has been a very close monitoring of the banks by the CBN. Later, other reform measures were adopted in order to create financial sector stability, enhancement of banks’ quality, enabling healthy financial sector and equally influencing the sector to be a strong in contributing to the real economy.
Mergers and acquisitions mean different things in different contexts [
Mergers and acquisitions act a popular means of growth for firms [
Business strategic objectives are concerned with creating a sustainable competitive advantage for the firm. Therefore, their success or failure has great consequences for shareholders and lenders as well as the above constituencies. Madura and Fox [
Sevenius [
In view of the above definitions, one may conclude that the definition offered by Sudarsanam [
Mergers represent significant and vital corporate investments and therefore when mergers fail in achieving their objectives then the various stakeholders will suffer greatly [
Given the above definitions, it is apparent that merger and acquisition do not have a single meaning but in the course of this study would also refer to combining two or more firms as one with the view of achieving both strategic and business objectives [
Mergers and Acquisitions are mainly classified in various ways [
1) Horizontal M & As: This refers to types of mergers and acquisitions that take place between two or more firms that are competing with one another because they engage in same line of business, offering the same or similar goods and services and in the same industry [
2) Vertical M & As: This is an example of a merger and acquisition relationship that is established between firms producing different goods or services for a specific finished product and within the same industry, e.g. supplier and producer, customer and supplier (buyer and seller) relationships [
3) Market-extension M & As: This type of mergers and acquisitions relationship takes place between firms that engage in the same line of business but operates entirely in different markets [
4) Product-extension M & As: This occurs when two or more companies that sell different but related products, services or both in the same market are involved in merger and acquisition [
5) Conglomeration M & As: this includes a firm that wants to exploit economic of scale and diversifications by establishing mergers and acquisitions relationship with another firm or firms that operate in a number of unrelated businesses with the former [
Given the above categorization, it could be suggested that the nature or type of business each firm does differs before establishing a new relationship or coming together. This categorization provides the basis for inquiry concerning the forms of M & As.
Studies showed that there are two main forms of mergers and acquisitions [
1) Friendly Mergers and Acquisitions: M & As negotiated within a friendly environment. The process begins when the management of one firm contacting the management of the target firm, normally through the investment bankers of each firm. The management of both firms keep the board of their directors informed about all the developments on the negotiations because at the end they will need the approval of their boards before proceeding with the approval of the shareholders and the approval normally goes through voting depending on the article of incorporation [
2) Hostile Mergers and Acquisitions: M & As negotiated within an aggressive environment [
The waves of mergers and acquisitions are normally triggered by two or more factors and the causes of M & As’ waves are differently defined by commentators largely based on their perceptions.
Mergers and Acquisitions as a phenomenon used to occur in bursts interspersed with relative inactivity and a pattern known as the wave pattern of M & As [
Between 1981 and 2000, Harford [
Oberg and Holtstrom [
The findings of paired t-test in
The findings of paired t-test in
The findings of paired t-test in
The result of paired t-test in
The findings of paired t-test in
The Nigerian Banking sub-sector has suffered problematic times since 1999, when the sector was facing problems of corporate governance as identified by the Central Bank of Nigeria. The study concludes that bidders were bigger and more successful in performance than the targets and that there were some significant differences between the two banks and that seems to be one of the factors that made bidders more successful and bigger than the targets. A number of significant differences were realised in all the variables between the two periods, and that may be the reason why bidder banks were successful in the pre-merger than during the post-merger. However, the findings differ from other studies’ findings
Variables | Bidder Banks | Target Banks | ||
---|---|---|---|---|
Mean | S.D | Mean | S.D | |
Bidder: | ||||
Natural logarithmic of total assets | 13.05 | 1.19 | 11.61 | 1.10 |
Equity of total assets ratio | 13.80 | 6.48 | 11.76 | 27.50 |
Loan loss provision to total loans | 4.35 | 6.59 | 5.54 | 2.56 |
Ratio of loans to total assets | 32.28 | 9.72 | 34.11 | 10.36 |
Ratio of deposits to total assets | 69.07 | 10.48 | 72.00 | 20.17 |
Loan to total deposits ratio | 48.35 | 18.11 | 49.24 | 16.86 |
Ratio of return to assets | 2.40 | 3.97 | 1.88 | 3.71 |
Variables | Bidder Banks | Target Banks | ||
---|---|---|---|---|
Mean | S.D | Mean | S.D | |
Bidder: | ||||
Natural logarithmic of total assets | 13.34 | 1.07 | 12.09 | 1.04 |
Equity of total assets ratio | 15.25 | 7.06 | 14.82 | 9.75 |
Loan loss provision to total loans | 4.15 | 8.45 | 4.45 | 3.76 |
Ratio of loans to total assets | 33.40 | 8.79 | 34.42 | 7.59 |
Ratio of deposits to total assets | 67.95 | 11.54 | 71.02 | 10.90 |
Loan to total deposits ratio | 50.85 | 17.14 | 49.87 | 14.07 |
Ratio of return to assets | 1.66 | 4.95 | 1.64 | 2.90 |
Variables | Before merger | After merger | ||
---|---|---|---|---|
Mean | S.D | Mean | S.D | |
Bidder: | ||||
Natural logarithmic of total assets | 13.05 | 1.19 | 15.02 | 0.83 |
Equity of total assets ratio | 13.80 | 6.48 | 12.54 | 14.79 |
Loan loss provision to total loans | 4.35 | 6.59 | 6.98 | 11.28 |
Ratio of loans to total assets | 32.28 | 9.72 | 35.40 | 11.22 |
Ratio of deposits to total assets | 69.07 | 10.48 | 72.79 | 14.58 |
Loan to total deposits ratio | 48.35 | 18.11 | 50.85 | 19.27 |
Ratio of return to assets | 2.40 | 1.46 | −0.25 | −2.27 |
Variables | Bidder Banks | Target Banks | ||
---|---|---|---|---|
Mean | S.D | Mean | S.D | |
Dependable variable: | ||||
Natural logarithmic of total assets | 13.34 | 1.07 | 14.98 | 0.86 |
Equity of total assets ratio | 15.25 | 7.06 | 16.34 | 7.42 |
Loan loss provision to total loans | 4.15 | 8.45 | 5.39 | 11.14 |
Ratio of loans to total assets | 33.40 | 8.79 | 31.06 | 9.07 |
Ratio of deposits to total assets | 67.95 | 11.54 | 70.96 | 12.74 |
Loan to total deposits ratio | 50.85 | 17.14 | 45.53 | 15.81 |
Ratio of return to assets | 1.66 | 4.95 | 1.15 | 3.63 |
Variables | Bidder Banks | Target Banks | ||
---|---|---|---|---|
Mean | S.D | Mean | S.D | |
Dependable variable: | ||||
Natural logarithmic of total assets | 14.00 | 1.25 | 15.02 | 0.83 |
Equity of total assets ratio | 15.75 | 9.17 | 12.54 | 14.79 |
Loan loss provision to total loans | 3.87 | 5.40 | 6.98 | 11.28 |
Ratio of loans to total assets | 34.35 | 14.38 | 35.40 | 11.22 |
Ratio of deposits to total assets | 70.11 | 17.50 | 72.79 | 14.58 |
Loan to total deposits ratio | 55.58 | 26.94 | 50.85 | 19.27 |
Ratio of return to assets | 2.23 | 2.68 | −0.25 | 8.28 |
Variables | Bidder Banks | Target Banks | ||
---|---|---|---|---|
Mean | S.D | Mean | S.D | |
Dependable variable: | ||||
Natural logarithmic of total assets | 13.78 | 1.19 | 14.98 | 0.86 |
Equity of total assets ratio | 15.35 | 9.90 | 16.34 | 7.42 |
Loan loss provision to total loans | 2.06 | 2.12 | 5.39 | 11.14 |
Ratio of loans to total assets | 32.35 | 13.15 | 31.06 | 9.07 |
Ratio of deposits to total assets | 70.62 | 20.12 | 70.96 | 12.74 |
Loan to total deposits ratio | 57.27 | 31.59 | 45.53 | 15.81 |
Ratio of return to assets | 2.85 | 1.72 | 1.15 | 3.63 |
that scope and scale economies in mergers will influence costs efficiency, profit efficiency and market power. Merger and Acquisition seems as a means of achieving business strategy.
The study recommends that the managers of large and efficient banks seeking to go for merger and acquisition should halt from targeting small and less efficient banks because it will lead to operational inefficiency. Therefore, decision-makers of corporations should be very cautious whether to go for merger and acquisition as a source of enhancing operational efficiency or to go for other alternative options because it may be misleading. Policy makers at national levels should be very vigilant in promulgating policies related to mergers and acquisitions, especially in enforcing mergers on firms (forced mergers) due to its sensitivity.
The authors declare no conflicts of interest regarding the publication of this paper.
Bolori, B.U. (2018) Is There Any Difference of Financial Features between Bidder and Target Banks in Nigeria Mergers and Acquisitions? Open Access Library Journal, 5: e4729. https://doi.org/10.4236/oalib.1104729