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AN EVALUATION OF THE IMPACT OF MERGERS AND ACQUISITIONS ON FIRMS’ EARNINGS A CASE STUDY OF OANDO PLC

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CHAPTER ONE

INTRODUCTION

                                      

1.1     BACKGROUND OF STUDY

As a result of changes in information technology, the need to restructure and reposition business organizations and most especially, the increasing rate of global economic crisis currently nicknamed ‘economic meltdown’, companies have begun to embrace the corporate strategy of mergers and acquisitions in an increasing rate as one of the most viable survival alternatives.

The aforementioned economic meltdown has almost kept the global business environment in jeopardy to the extent that most companies, banks inclusive, had phased out of the global market due to the inability to meet up with the financial requirement expected of them. It has become the survival of the fittest. In order to tighten their financial belt as a result of the problem, most companies have undertaken the global phenomenon of mergers and acquisitions. This business strategy has been in existence for a very long time in most developed countries of the world, where as, in slow developing countries like Nigeria, it is still new. For instance, USA adopted mergers and acquisitions as far back as 1890s but in Nigeria, the first successful mergers took place in 1983. That is, the merging of AG Leventis and Co Ltd with Leventis stores Ltd.

Subsequently, in recent years, there have been records of successful mergers and acquisitions in Nigeria most especially, in the banking industry as a result of new economic reform undertaken by Central Bank of Nigeria in 2004 which has left the country with few ‘but’ strong banks that can stand the test of time.

However, in the oil and gas sector of Nigerian economy, only few records of mergers and acquisitions have been made over the years, viz, the merging of ELF Nig Ltd and Total Nig Plc in 2001, the acquisition of Agip by Oando Plc formerly known as Unipetrol Nig Plc, etc.

Since mergers and acquisitions have become famous weapons (tools) to combat economic recession both in Nigeria and other countries of the world, there should be more records of that in oil and gas industry and other industries in Nigeria just as it is in the banking industry over the years. Hence, this research becomes necessary to ascertain whether this corporate strategy of mergers and acquisitions have helped increase firms’ earnings or not, using the key player in the downstream sector of oil and gas industry, Oando Plc, as a case study .

The findings made would help the researcher know if the few records of mergers in non bank sectors of the Nigerian economy is as a result of discouragement from the overall performances of the firms that have already adopted the strategy or not.

 

 

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