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Author: OSALONI, OLUGBENGA DAVID
Posted to the web: 7/13/2005 4:06:05 AM

By  D. O. Osaloni  B  A (Hons) Ife, LLB (Hons) Ibadan, BL Lagos.

 

The determination of the Federal Government of Nigeria to release the economy

From its stranglehold led to its efforts to place it in the liase fare arena of

Unbridled economic competitiveness as epitomized by its policy of deregulation

And privatization. The banking industry that had hitherto been an engine room of

The economy became a major “casualty” in these regards. Apart from the determination

Of Government to remove its hold on banks in which it held equity or statutory participation, it descended into the banking arena with a mandate to compel all banks

To increase their shareholders funds to N25,000,000,000.00 billion.

 

The concomitant effect of this directive is the rush by banks to either make the required amount or garner enough financial muscle to put them in a vantage position to negotiate a partnership, joint ownership or total surrender of franchise which had hitherto been identified as the main identities of these organizations.

 

Having considered the reasons behind this urge to raise capital at the capital market, this paper is a modest contribution to the various attendant discussions that are a common place in newspaper and seminars in the recent time.

 

What is merger and acquisition? These words are different in meaning and purport for reason of the implication of their eventual actualization. Merger is defined by Black’s Law Dictionary as “fusion or absorption of one thing or right into another, generally spoken of a case where one of the subject is of less dignity or importance than the other. Here the less important ceases to have an independent existence”. Acquisition on the other hand is defined as “the act of becoming the owner of certain property; the act by which one acquires or procures the property in anything”. From the foregoing it is very clear that these two terms are different and distinct in meaning The resultant effect or the right of parties to the transaction in the emerging scenario is different. 

The rights of directors and shareholders under merger would still be preserved to the extent of the quantum of the equity participation in the ‘partnership’. Some rights may have to be subsumed in deference to the right of a superior equity. Under an acquisition arrangement there is no contending interest since all the ownership of earlier concern had been acquired thereby extinguishing all incidental rights that existed in the pre-acquisition era.

 As plausible and simplistic as it may sound, the complication arising from the habitual, procedural, Information Technology, assets and liabilities and a plethora of other existing cultural values that individual ‘mergee’ or ‘acquisitioned’ is bringing to the table has made due diligence a ‘sine qua none’ in the negotiation of these type of transaction. Though what obtains presently in the various discussions is basically horizontal merger where two or more competing business competitors such as companies that trade in same line of product come together. We may equally have a less problematic one such as Up stream merger which is one of a merger of a subsidiary corporation into its parent company. E.g.  Afribank International Ltd (Merchant Bankers) into AFRIBANK NIGERIA PLC.

To avoid a future of unpleasant altercation that may result from lack of knowledge of the divergent peculiar problems and differences that exist between intending merging companies, it has become fashionable to conduct what is now popularly called DUE DILLIGENCE. This involve that parties must give each other the opportunity to inspect books, know the procedure in place, the type of technology and the possible cost of integration.

The information technology, assets and liabilities are usually areas of great concentration during due diligence exercise.  This will include the study of the extent provisioned accounts, court cases and times even contingent liabilities. There is no more apposite example here than the recent judgment of N7billion against U B A Plc .It may have been different if there was a due diligence exercise before the decision of the partnership with Standard Trust Bank Plc. It may equally have mitigated the share pricing of the transaction if the S T B were aware. It is therefore cardinal for parties to hold out themselves to appoint neutral agents to conduct the due diligence because the need for dispassionate appreciation of the facts available so as to lead the parties to the transaction

With their “eyes wide opened”.

The emerging economic implications are that only major players can now traverse the wide banking market in the country in the imminent post consolidation era. The inescapable imperative of “mega” banks has now dawned on Nigerians and this, it is respectfully submitted, shall improve the macro and micro economics since the indices available will occasion possible drastic drop in the interest rate regime and stiff competition will be encouraged.

This may equally encourage the Federal Government to invest the reserves hitherto kept in foreign countries in Nigerian banks and the multiplier effect of this is better imagined. This article therefore join other well meaning financial operators, analysts and statutory monitors who have expressed positive opinions on this commendable development championed by Proffessor C.  Soludo with the approval and encouragement of Chief Olusegun Obasanjo.