UNIVERSITY OF CAPE COAST
THE IMPACT OF MERGERS AND ACQUISITIONS ON THE
CORPORATE FINANCIAL PERFORMANCE OF GUINNESS GHANA
BREWERIES LIMITED
BY
STEPHEN SANYE BATOGBEE SEIDU
A DISSERTATION SUBMITTED TO THE DEPARTMENT OF
ACCOUNTING AND FINANCE OF THE SCHOOL OF BUSINESS OF
THE UNIVERSITY OF CAPE COAST IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE AWARD OF MASTER OF BUSINESS
ADMINISTRATION
AUGUST 2008
UNIVERSITY OF CAPE COAST
THE IMPACT OF MERGERS AND ACQUISITIONS ON THE
CORPORATE FINANCIAL PERFORMANCE OF GUINNESS GHANA
BREWERIES LIMITED
STEPHEN SANYE BATOGBEE SEIDU
AUGUST 2009
DECLARATION
Candidate’s declaration
I hereby declare that this dissertation is the result of my own original
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Finally, the following organizations deserve mention and gratitude:
Strategic African Securities (SAS), Merban Registrars (a division of Merchant
Bank Limited), Ghana Stock Exchange (GSE) and Guinness Ghana Breweries
Limited. Special mention must be made of Mrs. Harriet Antwi, head of Merban
Registrars; Miss Angela, head of SAS Research Department and Mrs Woode , head of GSE Research Department.
v i
TABLE OF CONTENTS
Content
Page
DECLARATION
ii
ABSTRACT
iii
ACKNOWLEDGEMENTS
iv
DEDICATION
v
TABLE OF CONTENTS
vii
LIST OF TABLES
vi
LIST OF FIGURES
vi
CHAPTER ONE: INTRODUCTION
1
Background
1
Problem Statement
5
Objectives of Study
6
Significance of Study
6
Structure of the Study
8
CHAPTER TWO: LITERATURE REVIEW
9
Introduction
9
Definitions
9
Classifications of Mergers
11
Reasons For Mergers (Mergers Versus Internal Growth)
13
Non Value Maximization Motivation Theory
14
Value Maximization Motivation Theory
17
vii
Justification of Mergers
24
Who Gains From Mergers?
25
The Procedures Of Mergers
30
Determination of the Value of a Firm
33
Terms of Mergers
35
Quantitative Factors Affecting Merger Terms
35
Merger Waves
37
CHAPTER THREE: METHODOLOGY
41
Introduction
41
Background of the Companies
41
Study Design
According to the researchers the increased value results from an opportunity to utilize a specialized resources which arises solely as a result of the merger (Jensens & Ruback, 1983; Bradle, Desai and Kim , 1983). For creating operational and financial synergies managers believe that two enterprises will be worth more if merged than if operates as two separate entities. Thus, the two companies, A and B:
Merging with another organization has downfalls of destroying wealth from the merger. Considering the buying price is important when merging, spending too much on the merger will impound the value after the merger. Some mergers do not create wealth so capital is lost through the merger. There is no guarantee of financial gain and every formula considered with focus, just as with an acquisition. The final decision dictated by the variables. One company merging with another company takes the debt and losses of those companies in the new formed company.
In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of the consolidation process. Then we present the acquisition method of accounting for business combinations followed by limited coverage of the purchase method and pooling of interests provided in a separate sections.
Becoming a larger more efficient company with a strengthening competitive position opens up the opportunity for more mergers and acquisitions of competitors, suppliers and/or customers.
Mergers and acquisitions have become a growing trend for companies to inorganically grow a business within its particular industry. There are many goals that companies may be looking to achieve by doing this, but the main reason is to guarantee long-term and profitable growth for their business. Companies have to keep up with a rapidly increasing global market and increased competition. With the struggle for competitive advantage becoming stronger and stronger, it is almost essential to achieve these mergers. Through research I will attempt to dissect the best practices for achieving merger success.
A merger is a partial or total combination of two separate business firms and forming of a new one. There are predominantly two kinds of mergers: partial and complete. Partial merger usually involves the combination of joint ventures and inter-corporate stock purchases. Complete mergers are results in blending of identities and the creation of a single succeeding firm. (Hicks, 2012, p 491). Mergers in the healthcare sector, particularly horizontal hospital mergers wherein two or more hospitals merge into a single corporation, are increasing both in frequency and importance. (Gaughan, 2002). This paper is an attempt to study the impact of the merger of two competing healthcare organization and will also attempt to propose appropriate
* For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.
Question 1 Several factors have been proposed as providing a rationale for mergers. Among the more prominent ones are (1) tax considerations, (2) diversification, (3)
The goals of mergers range from reducing the number of competitors, to access of new products (Belcourt et al., p 330). Statistics show that 80% of new product developments fail (Howells, 2011), partly due to challenges and conflicts with human resources functions. Mergers and acquisitions are the fastest way to enter new markets. “It is estimated that 1/3 of all mergers fail due to faulty integration of diverse operations and cultures,” (Chhinzer, 2013). Therefore, the success of a merger or acquisition lies in the ability to guide, motivate, retain, and effectively use
Market price per share: should be bigger or equal after the merger, which often is not the case.
Haspeslagh and Jemison (1987), argue that what determines the success of a acquisition is not the actual purchase itself, but the development of the acquisition strategy the supports. Unfortunately, many executives face the acquisitions as an end, not a means to achieve that end. According to this author, the acquisition is only one strategy business growth. There are others as internal growth, joint venture, partnership, franchise and strategic alliance. All should be evaluated by the company before implementing a business development strategy. A proper analysis of the acquisition goes beyond the study's own candidate company. It must include a contribution from the analysis of potential acquisition for the strategic development, as well as
find little evidence of wealth creation, with shareholders of the target firms gaining at the expense of the bidder firms. A merger is said to create value, if the combined value of the bidder or target firm increases on the announcement of the merger (Houston et al., 2001) (Ghosh & Dutta, 2015) (Campa, 2004). Moreover, the synergistic gains hypothesis of corporate acquisitions underlined by Isa & Yap (2004) states that, a combination of two firms will result in a combined gain that is, more than the sum of the value of the individual firm. These gains may be attributed to the increasing efficiencies and synergies of the companies involved.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic Management: Concepts and cases: Competitiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning.
Mergers and acquisitions have developed to be a widespread occurrence in modern era. A merger of the size like Adidas-Armani has repercussion for the labor force of these companies transversely to the world. Although the integration of units gives an immense arrangement of significance to monetary issues and the effects, there are still some issues are the most commonly ignored ones such as human resources, financial management, marketing, sales etc.. Ironically studies confirm that the majority of the mergers not succeed to convey the preferred results because of people associated concerns. The ambiguity resulted by badly handled management issues in mergers and acquisitions have been the foremost grounds for these collapses.
BEING A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, UNIVERSITY OF ABUJA, ABUJA, NIGERIA