UKEH ANGELA N. PG/MBA/08/53348 MAIN WORK JROJECT.… · a case study of oando plc. by ukeh angela...

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AN EVALUATION OF THE IMPACT OF MERGERS AND

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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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UKEH ANGELA N. PG/MBA/08/53348

AN EVALUATION OF THE IMPACT OF MERGERS AND ACQUISITIONS ON FIRMS’ EARNINGS.

A CASE STUDY OF OANDO PLC.

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AN EVALUATION OF THE IMPACT OF MERGERS AND ACQUISITIONS ON FIRMS’ EARNINGS. A CASE STUDY OF OANDO PLC. BY UKEH ANGELA N. PG/MBA/08/53348 DEPARTMENT OF BANKING AND FINANCE FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU CAMPUS (UNEC) MARCH, 2012. TITLE PAGE AN EVALUATION OF THE IMPACT OF MERGERS AND ACQUISITIONS ON FIRMS’ EARNINGS. A CASE STUDY OF OANDO PLC. BY UKEH ANGELA N. PG/MBA/08/53348 A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA) DEGREE IN BANKING AND FINANCE. DEPARTMENT OF BANKING AND FINANCE FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU CAMPUS (UNEC) MARCH, 2012.

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CERTIFICATION This is to certify that this project report written by Ukeh Angela N. with the registration number PG/MBA/08/53348 presented to the Department of Banking and Finance, University of Nigeria Enugu Campus is original and has not been submitted for the award of any degree or diploma either in this school or any other tertiary institution

Ukeh , Angela N. Date Researcher This is to that this project report written by Ukeh Angela N. with registration number PG/MBA/08/53348, presented to the Department of Banking and Finance, University of Nigeria Enugu Campus (UNEC) was submitted in partial fulfillment of the requirement for the award of MBA in Banking and Finance.

Dr. Chikeleze, B. E. Date Project Supervisor

Dr. Onwumere, J.U.J Date Head of Department

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DEDICATION This research work is dedicated to the Alpha and Omega of my life and to my lovely parents. Mr. and Mrs. E.U. Ukeh.

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ACKNOWLEDGEMENT I wish to express my gratitude to the Almighty God, Jehovah Elshadai, the great provider, who saw me through this MBA programme. He supplied all my needs according to His riches in glory. May His name be glorified forever. I also remain grateful to my project supervisor, Dr Chikeleze,B.E., for work well done irrespective of his health condition during the research. My heartfelt thanks also go to all the lecturers in banking and finance department of postgraduate School for their support and encouragement. They include Prof. Uche C., Mrs. Modebe N.J., Mr. Asomugha, Dr. Okoro Okoro and others. Finally, I remain indebted to my lovely brother, Ukeh Ozioma G. for his financial support. May our good God bless you all in Jesus name. Amen. Ukeh Angela N.

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ABSTRACT This research work captioned ‘An Evaluation of the Impact of Mergers and Acquisitions on Firms’ Earnings. A Case Study of Oando Plc’ involves the trend analysis of three year pre-merger and three year post-merger financial statements of a case study with mergers and acquisitions experience chosen from the downstream sector of oil and gas. The study was embarked on with the following objectives; -To ascertain whether there is positive change or otherwise on the Earnings Per Share of Oando Plc after the adoption of mergers and acquisitions strategy. -To measure the changes in the dividend per share of Oando Plc between pre and post merger periods under review. -To examine the merger effects on the firm’s or company’s profitability. -To find out general performance of Oando Plc in Nigerian economy in the post-merger periods under review. -To make necessary recommendations to companies in Nigeria on the need to either adopt or neglect mergers and acquisitions option as corporate survival strategy in a bad economy base on the findings made in the study. In order to achieve these objectives, the researcher formulated research questions in accordance with the set objectives. The data used in the study were purely secondary data which were analysed using ratio model and descriptive method of analysis which include percentages and standard deviation. Hence, research questions were majorly used rather than hypotheses testing.Table interpretations were also adopted for clearer understanding of the analysis. The major findings of this study include; - most of the profitability ratios of Oando Plc declined in the post-merger period under review due to the aggressive restructuring activities carried out by the company over the years. - mergers and acquisition benefits are not enjoyed instantly but in the long run. - the earnings per share and dividend per share of the company improved over the post-merger years despite the decline in the profitability ratios. Based on these findings, the researcher made recommendation that companies should adopt mergers and acquisitions as a corporate business strategy but should follow the necessary steps meticulously in order to reap the underlying benefits because, like other business stratagies, mergers and acquisitions are not risk free.

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TABLE OF CONTENT CHAPTER ONE 1.0 INTRODUCTION PAGE 1.1 Background of Study- - - - - - - - 1 1.2 Statement of the Problem- - - - - - - - 3 1.3 Objectives of the Study- - - - - - - - 4 1.4 Research Questions- - - - - - - - - 5 1.5 Research Hypotheses- - - - - - - - 6 1.6 Significance of the Study- - - - - - - - 7 1.7 Scope of the Study- - - - - - - - - 8 1.8 Limitation of the Study- - - - - - - - 8 1.9 Definition of Terms- - - - - - - - - 10 References- - - - - - - - - - 14 CHAPTER TWO 2.0 A REVIEW OF RELATED LITERATURE 2.1 An Overview of Mergers and Acquisitions- - - - - 15 2.2 Distinction Between Mergers and Acquisitions- - - - - 16 2.3 Typology of Mergers- - - - - - - - - 19 2.3.1 Horizontal Merger- - - - - - - - - 19 2.3.2 Vertical Merger- - - - - - - - - 20 2.3.3 Conglomerate Merger- - - - - - - - 20 2.4 Reasons for Mergers and Acquisitions- - - - - - 21 2.5 Basic Consideration in Mergers Arrangement- - - - - 25 2.6 Methods of Consummating Mergers and Acquisitions- - - - 28 2.6.1.Pooling of Interest Method- - - - - - - - 28 2.6.2.Purchasing Accounting Method- - - - - - - 28 2.7 Market Reaction to Acquisition Announcements- - - - 30 2.8 Steps for a Successful Merger- - - - - - - 31 2.8.1.Steps Needed for a Successful Merger Outcome- - - - - 31 2.9 Modalities of Exchanging Mergers- - - - - - 34 2.10 The Impact of Mergers and Acquisitions on Firms Financial Statement and Ratios- - - - - - - -34 2.10.1. The Positive Impact when Cash is Used- - - - -35 2.10.2. The Negative Impact- - - - - - - -36 2.10.3. The General Impact if Equity is Used- - - - - -36 2.11. Regulatory Issues on Mergers and Acquisitions- - - -37 2.11.1. Reasons for Mergers and Acquisitions Regulation- - - -37 2.11.2.The Regulatory Framework for Mergers and Acquisitions in Nigeria- - - - - - - - - -39 2.11.3 The Recent Development in the Investments and Securities Act (ISA)- - - - - - - - - -45 2.12 A Brief History of the Case Study - - - - - -47 References - - - - - - - - - -50 CHAPTER THREE 3.0 RESEARCH METHODOLOGY 3.1 Research Method - - - - - - - - -53 3.2 Source Of Data- - - - - - - - -53 3.3 Method of Data Collection- - - - - - - -53 3.4 Sample Size- - - - - - - - - -54 3.5 Data analysis Model- - - - - - - - -54 References- - - - - - - - - -58 CHAPTER FOUR 4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1 Data Presentation- - - - - - - - -59 4.2 Research Questions Analysis- - - - - - -67 4.3 Interpretation of Results- - - - - - - -72 CHAPTER FIVE 5.0 SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION 5.1 Summary of Findings- - - - - - - - -74 5.2 Recommendations- - - - - - - - -77

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5.3 Conclusion- - - - - - - - - -78 BIBLIOGRAPHY- - - - - - - - - -79 APPENDIX

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��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�� 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. 1.2 STATEMENT OF RESEARCH PROBLEM As earlier said, the global problem of economic recession and stiff competition in the world market have really opened the eyes of most business organisations towards the adoption of some corporate survival strategies which include loan syndication, leasing, re-capitalisation, mergers and acquisitions, etc. Among these, mergers and acquisitions seem to be the most adopted strategy in the recent years. They are taken as drastic survival measures in business world with the alchemy, “one plus one makes three”.McClure(2009:1). Not only smaller companies unable to compete favourably with bigger ones adopt these measures, bigger and successful companies also embark on them in order to remain profitable and to consolidate on their operation by taking over smaller ones. Hence, the synergy effect of mergers and acquisitions to the acquiring firms is one major factor that propels firms to adopt the strategy. No wonder, the Central Bank of Nigeria through its former chairman, Prof. Charles Soludo, instigated banks to merge and / or acquire the weaker ones by upward reviewing their capital base as one of the thirteen (13) points agenda aimed at engendering a healthy, robust, strong and reliable banking sector that will ensure the safety of depositors’ funds as well as play active role in Nigeria and global financial markets. Not only in banking industry, other sectors of the Nigerian economy such as oil and gas sector, etc have recently adopted the strategy in order to stand the test of time in the recent global economic crisis. Consequently, the research on the topic “An Evaluation of the Impact of Mergers and Acquisitions on Firms’ Earnings” becomes necessary to ascertain its earnings benefits to the firms that have adopted this strategy using Oando Plc as a case study. 1.3 OBJECTIVES OF THE STUDY The researcher, having identified the increase in the adoption of mergers and acquisitions as a corporate survival strategy in the recent years by some sectors of Nigerian economy and its decrease in other sectors of the same country, embarks on this research work with the following objectives: -To ascertain whether there is positive effect or otherwise on the Earnings Per Share of Oando Plc after the adoption of mergers and acquisitions strategy.

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-To measure the changes in the dividend payout of Oando Plc between pre and post merger periods under review. -To examine the merger effects on the firm’s or company’s profitability. -To find out general performance of Oando Plc in Nigerian economy in the post-merger periods under review. -To make necessary recommendations to companies in Nigeria on the need to either adopt or neglect mergers and acquisitions option as corporate survival strategy in bad economy base on the findings made in the study. 1.4 RESEARCH QUESTIONS Since this study is focused on the evaluation of the outcome of mergers and acquisitions on the earnings of firms that adopted the strategy using Oando Plc as a case study, it calls for this problematic questions. Viz i) Was there any change in the Return on Capital Employed (ROCE) of Oando Plc in the post-merger period? ii) Does merger and acquisition have a significant effect on the Earnings Per Share of Oando Plc ? iii) Did the Gross Profit Margin of Oando Plc appreciate after the mergers and acquisitions experience? 1.5 RESEARCH HYPOTHESES The researcher wishes to state the following hypotheses, though the nature of the study does not call for their testing: Ho: There is no change in the Earning Per Share of Oando Plc in the post-merger period. H1: There is a change in the Earning Per Share of Oando Plc in the post-merger period. Ho: Merger has no significant effect on the dividend payout of Oando Plc. H1: Merger has a significant effect on the dividend payout of Oando Plc. Ho: The Return on Capital Employed of Oando Plc’s did not appreciate as a result of mergers and acquisitions. H1: The Return on Capital Employed of Oando Plc appreciated as a result of mergers and acquisitions. 1.6 SIGNIFICANCE OF THE STUDY Mergers and Acquisitions as a survival strategic tools are meant to benefit the acquiring or/and merged companies in different ways such as risk diversification, synergy, economies of scale, excess cash utilization to mention but a few. Nevertheless, firms still need to carry out a feasibility study to know the possible outcome of a given merger option before adopting or accepting it in order to avoid unfruitful venture. Therefore, even if this research is not a comprehensive and exhaustive one as a result of the unavailability of some vital information, limited time and financial constraint, all aspect of the work is very relevant in one way or the other to the Nigerian firms who wish to maintain their ground or survive in the midst of the ongoing global economic crisis by adopting or planning to adopt the mergers and acquisitions strategy. Secondly, it would go a long way in educating the stakeholders in Nigerian firms on the impact of mergers and acquisitions on firms’ earnings. This would motivate them to invest properly and wisely. Finally, the study is primarily designed for all the people who may be interested in carrying out further research on mergers and acquisitions as a vital and viable corporate strategy. 1.7 SCOPE OF THE STUDY In pursuant of excellence and the achievement of the best possible result, the best option would have been to make this research in all sectors of Nigerian economy where mergers and acquisitions strategy have been adopted. But such a large population is likely to pose numerous problems hence, the researcher centered on oil and gas industry with the hope of generalizing any findings made to all other firms in the country that have involved in the above corporate strategy. Therefore, the research encompasses the pre and post mergers financial analysis of Oando Plc. The findings made in this analysis would help the researcher to provide solution for answers to the research questions. In other words, this is based mostly on the use of secondary data. 1.8 LIMITATION OF THE STUDY The study is based mostly on the use of secondary data which include journals, news papers, internet information, text books and most importantly, the Annual Reports of Oando Plc. However, in the research process, the researcher encountered some problems that tried to mar the research efforts. Some of these include financial constraint, unavailability of all the Oando Plc’s Annual Reports needed for extensive work, time factor and most importantly, not-on-seat syndrome of the librarian in the Banking and Finance departmental library (UNEC) due to other official assignments.

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Success of any venture depends on the capital outlay or the extent to which the venture is financed. In other words, financial constraint was responsible for the researcher’s inability to gather all the required information for elaborate study. Sourcing materials or information from the internet involves huge amount of money these days coupled with series of interruption in the power supply. Again, the required number of Annual Reports of Oando Plc needed for extensive financial analysis of the firm’s performance before and after merger periods were difficult to get. However, the researcher laid hands on the available ones only. Not only these, the issue of time factor should not be overlooked. Shortness of the academic session coupled with four months industrial action by the Nigerian Universities staff during the research period was unfavourable to the researcher in the research process. The worst of all was the issue of the aforementioned librarian not usually on seat most of the time to attend to students who were in need of the available text books and journals in the library due to other official engagements he had. This was partly because he did not have any assistant as at the time of this research. However, the researcher was deprived of the ample opportunity needed to gather enough information for the literature review. All these posed problem in the research process since the research was basically on the use of secondary data. Nevertheless, the researcher, through ceaseless effort, was able to come up with a valid and reliable result. 1.9 DEFINITION OF TERMS The following words used in the context of this research report are defined alphabetically to the understanding of a lay reader with no intention of repetition. Alchemy: Medieval form of chemistry. Amalgam: In this context, it is the combination of two or more firms. Asset: An accounting balance sheet item that constitutes the total value of an organization/firm. Capital Market: A market where long term financial instruments such as shares, bonds, etc are bought and sold. Consolidation: This means the combination of business group/ activities into a single unit with the aim of strengthening the group’s success or position. It can also be defined as the strength, stability or depth of group’s success. Correct Ratios: More reliable ratios needed for the evaluation of a firm’s earnings. Dividend: A percentage of a company’s profit which is given out to its shareholders as their own share of the profit. Downstream Oil Sector: This is a term commonly used to refer to the refining of crude oil and the selling and distribution of natural gas and products derived from crude oil such products include liquefied petroleum gas, LPG, gasoline or petrol, jet fuel, etc. Economic Meltdown: The going down of the rate of economic activities of a country. Equity: Stock that entitles the holder to profits. It is the share of stock in a corporation that pays the holder some of its profits. It is the ordinary share capital plus general reserve. Equity Financing: The sale of share capital of a company in order to raise money for use in the business. Leverage Ratios: The group of ratios that measure the activity of a firm to meet with its long term debt obligations. E.g. Total Debt to Equity Ratio. Liquidity: An ability to convert an asset to cash quickly. It can also be defined as the degree to which an asset can be bought or sold in the market without affecting the asset’s price. Predatory Practices: Unfair deceptive or fraudulent practices of some lenders during the loan origination process. It is the imposition of unfair and abusive loan terms on borrowers. Synergy: This can be defined as the working together of two or more people or organisation especially when the result is greater than the sum of their individual efforts or capabilities. Take Over: According to CAMA 1990, take over is defined as the acquisition of one company of sufficient shares in another company to give the acquiring company control over the other company. It is a forceful acquisition of control interest in a business enterprise. Target Firm: A firm to which an offer to be acquired or bought is made by another firm (acquiring firm) or individual. REFERENCES ARM Research: Stock Report. September 20,2004.

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Emekekwue, P. (2002),“Corporate Financial Management”. Kinshasa, African Bureau of Educational Sciences. McClure, B (2009), “Mergers and Acquisitions“. www.investopedia.com “Twenty-five(25) Billion Naira Capitalization. The Journey so far and its Likely Implication on the Nigerian Economy”. www.nigerianbusinessinfo.com CHAPTER TWO 2.0 A REVIEW OF RELATED LITERATURE 2.1 AN OVERVIEW OF MERGERS AND ACQUISITIONS In the recent years, firms have tended to chart a new course of growth which is generally external, aggressive and more radical than the gradual process of expanding along their former lines of activities. This external growth process is through mergers and /or acquisition of existing businesses. This is another aspect of finance that has gained prominence in the global economy. Although, firms have been merging or acquiring existing businesses over the years, the current trend of firms coming together to enjoy synergistic benefits has given strong impetus to mergers and acquisitions as a corporate survival \ growth strategy even in the midst of global economic crisis recently termed ‘economic meltdown’. As earlier stated in chapter one, the equation that serves as the special alchemy for mergers and acquisitions is ‘one plus one makes three’. The key principle behind buying a company is to create shareholders value over and above that of the sum of two separate companies. This rationale is particularly alluring to companies during tough times. Strong companies will act to buy other companies to create a more competitive cost efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Due to these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. 2.2 DISTINCTION BETWEEN MERGERS AND ACQUISITIONS Although they are often uttered in the same breath and sued as though they were synonymous, the terms 'mergers' and 'acquisitions' mean slightly different things. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition but when two or more companies that were formerly independent combine into one organization or company with a common management and ownership, it is known as mergers. Again a purchase deal could also be categorised into merger or acquisition depending on the system of negotiation. If the Chief Executive Officers (CEOS) of two companies agree that joining together is in the best interest of both of their companies, then the purchase deal would be called ‘a merger’ But, when the deal is unfriendly, that is, when the target company does not want to be purchased, it is called on acquisition. Therefore, the classification of a purchase as a merger or an acquisition depends on whether the purchase is friendly or hostile as it is announced. In other words, the real difference lies on how the purchase is communicated to and received by the target company’s Board of Directors, employees and shareholders. In other words, merger can be regarded as an amalgam of two or more companies to form a single company. The surviving company usually dominates all other companies involved in the merger by making them lose their identities. In the pure sense of the term, before a merger takes place, there should be an agreement between the companies that want to merge, to go forward as a single new company rather than remain separately owned and operated. It can exist between companies of about the same size or otherwise. When it exists between companies of the same size, the action is precisely referred to as a “merger of equals”. Both companies stocks are surrendered and new company stock is issued in its place as in the case of Daimler – Benz and Chrysler in United States. The two separate companies ceased to exist when they merged and a new company, Diamler – Chrysler was created. McClure (2009:1). In practice, however, actual ‘mergers of equals’ do not happen very often. Usually, one company will buy another and, as part of the deal’s terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable. There is yet another category of merger called a 'reverse merger'. This is a deal that enables a private company to get

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publicly listed in a relatively short term period. It occurs when a private company that has strong prospects and is eager to raise financing fund buys a publicly listed shell company, usually, one that has limited assets and has no business. The private company reverses merge into the public company and together they become an entirely new public corporation with tradable shares. An acquisition on the other hand, is essentially the purchase by one company of all of or substantial interest of another such that the acquired company becomes a subsidiary or division of the acquirer. Emekekwue, (2002:444) opines that acquisition can be regarded as a situation where one company, the bidder, buys total or majority share from a smaller company and that smaller company could retain its identity by continuing in its former line. However, some reorganization is likely to follow after the takeover, he added. Like mergers, acquisitions are the actions through which companies seek economies of scale, efficiencies, and enhanced market visibility. The actions are often congenial and all parties feel satisfied with the deal. A company can buy another company with cash, stock or a combination of the two. Also, in some smaller deals, one company can acquire all the assets of another for cash. Here, the acquired company has only cash and will finally liquidate or enter another area of business. However, their categories or structure notwithstanding, all mergers and acquisitions have one common goal. They are meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. Hence, the success of a merger or an acquisition depends on whether this synergy is achieved 2.3 TYPOLOGY OF MERGERS Mergers and acquisitions are often broadly classified into three viz horizontal, vertical and conglomerate mergers 2.3.1 Horizontal Merger / Acquisition A merger or an acquisition is said to be horizontal when it involves the combination or fusion of enterprises in the same line of business. That means, the merger of two or more drug manufacturing firms, poultry feed mills, banks, etc is horizontal in nature. This type of merger is also called replicative mergers. 2.3.2 Vertical Merger / Acquisition This type of merger or acquisition results when firms are engaged in complementary business activities. This can result when some bakeries merge with a flour mill to take up all the flour produced from the mill. A poultry firm could merge with a poultry feed mill. This type of arrangement is a good marketing strategy for enhancing sales or monopolizing a particular raw material to the detriment of other users of the same materials. In this type of arrangement, each firm continues in its former line of production after the merger was consummated. This category of merger is also called complementary merger according to Emekekwue (2002: 447) 2.3.3 Conglomerate Merger / Acquisition The word ‘conglomerate’ suggests a union of unlike bodies to form one amorphous organisation. It can be taken as a sort of octopus or a hydra headed organisation. In other words, this type of merger involves the coming together of two business concerns in completely unrelated line of operation such as the combination of a pharmaceutical company with an insurance firm. Companies engaged in this form of business combination are often motivated, interalia, by the desire to diversify risk with the ultimate goal of maximizing returns. Apart from these three broad categories, there are still other categories of mergers which may be found in the first three. They are (i) Market Extension Merger (ii) Product Extension Merger (iii) Purchase Merger (iv) Consolidation Merger The last two are classified based on how merger is financed. Each has certain implication for the companies involved and for investors. 2.4 REASONS FOR MERGERS AND ACQUISITIONS A lot of reasons have been given as answers to the questions on why firms should desire to merge their business with another firm in spite of the motivating factors in business management that they enjoy by being independent. Such factors include undiluted control, pride of ownership, enhanced status, etc. Principal among the reasons are diversification, operating economics of scale, synergy, averting business failure, tax loss carry over, technological drive, stock exchange quotation, increased market share, means of attracting factor input and skilled manpower, and use of excess cash. These reasons could also be regarded as the benefits or advantages of mergers and acquisitions. They are thus analysed in details. Diversification of Risk: Corporate organizations often embark on diversification of their operations either as a hedge against possible failure or to maximize returns. This is particularly common with conglomerate mergers. Similarly, the costs and risks involved in developing and

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maintaining a new product line may be avoided or reduced through the acquisition of a going concern. Economies of Scale: Small firms in the same line of production may combine to increase the volume of their output with a view to attaining certain output levels. If output rises at a faster pace than total cost of production, then average cost of production is likely to drop in the long run thereby encouraging profitability and growth through increased efficiency. Synergy: This is another major reason for mergers & acquisitions. It is a situation where the product of the merger is in excess of the value of the aggregate product of all the firms put together. Synergy takes the form of revenue enhancement and cost savings. Therefore, its achievement depends on the achievement of other benefits like economies of scale, staff reduction which reduces cost, etc. Business Failure Aversion: A firm in an industry that is experiencing a down turn can merge with a firm in a booming industry and so enhance its profitability. Tax Loss Carryover: A firm that makes substantial loss is allowed to carry forward the loss and write it off in subsequent year over the profit made. Thus, any firm that is carrying over its loss may retain all its profits and use same to defray the loss instead of paying a chunk of that profit as tax to the government. Therefore, if a profitable firm merges with such firm described above, the taxes that the profitable firm would have paid would then be avoided. v) Technological Drive: To stay competitively, companies need to stay on top of technological development and their business applications. By buying or merging with a smaller company with unique technologies, a large company can maintain or develop a competitive edge. Stock Exchange Quotation: Business combination could be motivated by the desire for stock exchange listing. A private company that desires to be quoted publicly but could not meet the listing requirements of the stock exchange may integrate with a publicly quoted company in order to realise its goal. Staff Reduction / Cost Saving: As every employee knows, mergers tend to mean job losses. By reducing the number of staff members from different departments of the companies engaged in the merging / acquisition option, large amount of money is saved. Job cuts will also include the former CEO who typically leaves with a compensation package. Use of Excess Cash: A company that finds itself with more cash than it can use at present in its business operation may look for another business to buy. This is very important because cash is sterile and if proper use is not made of such excess cash, the company might find itself over-capitalized. Increased Market Share: A company may decide to merge with another company that has similar products in order to enlarge its market share after merging. Similarly, a company can increase. Its price earnings Ratio through mergers. For instance, if a company’s stock say company A, is selling at ten time its earnings per share and the stock of another company, say company B, is selling at five times its earning and if company A buys up company B and its price earnings ratio stay at ten, then the capitalized value of company B has doubled. At this stage, company A will be forced to buy up all the shares of company B. 2.5 BASIC CONSIDERATION IN A MERGER ARRANGEMENT In the actual sense of it, mergers and acquisitions help to resuscitate smaller companies and make big companies bigger, by guaranteeing increased revenues and earnings. However, these corporate strategies are not always favourable. In other words, mergers and acquisitions may be brilliant decisions or complete disasters. The equation that says, “one plus one equals three may turn out to be ‘one plus one is less than two’. For instance, the merger of AOL and Time Warner in United States of America was sold as a creative combination of old economy and new economy giants. When the internet bubble collapsed, AOL Time Warner became a major merger blunder of the 21st century in US. Garoux (2006: 153) Therefore, mergers and acquisitions, just like other business ventures, are not risk free. As a result of this, the owners of the companies that desire to merge should be precautious by considering some issues during negotiation. Some of the issues for which answers are sought include. (i) What benefits can be derived from the merger? (ii) How can such a merger be financed? What are the necessary steps to be taken to ensure that the anticipated benefits will be realised after merger? Who is now going to control the new organisation? It is clear that firms do not engage in a merger for the fun of it but for the benefits there in as discussed previously. Depending on the type of merger, companies ought to consider the likely benefits to be derived from a merger proposal during its negotiation to avoid one sided benefits. On the issue of finance, it is obvious that the company being acquired is trading a business for cash or securities of the surviving firm. Therefore, two packages of assets are involved in this arrangement as well as two sets of owners. Each owner specifies the value of assets it is giving

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up and the value of assets it is going to receive. Therefore, the deal should be arranged in such a way that each owner will receive a package better than the one it is given up. Furthermore, the owners of the acquiring company in a merger arrangement do not compromise status and large salaries unlike the merged company. The former might be compelled to accommodate the former executives of the later for some years. The main focus of the executives of the acquiring company is on how to ensure that the anticipated benefits resulting from the merger are optimized. The interest groups will be also concerned about the market potentials of the new stock they will hold. If it is low, it shows that their liquidity will be low. As a result, they will be reluctant about the arrangement. But if the market potential is high, the liquidity of their stock holding will be high thereby making the parties happy about the merger. In addition to these, since the synergistic benefits derived from merger are expected to increase the earnings per share of the surviving company beyond the pre-merger level, the owners of the new firm will desire to ensure that this boost is sustained by enhanced productivity. Finally, the question on who controls the new firm is another serious issue that should give concern to the owners of the firms to be merged. The complexity of this depends on the type of merger the firms are seeking for. In the case of absorption merger, the executives in the surviving firm would ultimately control the new firm. But if a consolidation merger is sought, an outsider could be appointed as the chief executive if the former chief executives in the merged firms are not competent. On the other hand, if any of the former executives is good enough to handle the situation, then, he will be allowed to exercise control in the new firm. Emekekwue (2002: 445-446) 2.6 METHODS OF CONSUMMATING MERGER TRANSACTIONS There are usually two methods of carrying out mergers transactions. It is either (a) pooling of interest or (b) purchase accounting. 2.6.1 Pooling of Interest Method This method allows the merger partners to merely sum the volume of their assets, liabilities and equity in the amount recorded just before their merger takes place. This results to a merged firm displaying a simple combined total of all the merger partners' assets, liabilities, and equity in one combined balance sheet. The income statement of the newly consolidated firm will reflect the income and expenses of both firms added together for the full periods of time covered by the income and expenses statement as though the merging businesses had been one company when the income statement began. The Financial Accounting Standard Board (FASB) in USA permitted the use of this method for mergers that begun before July 1st, 2001. 2.6.2 Purchase Accounting Method Under this method, as the name implies, the firm to be acquired is valued at its purchase price and the price is added to the total assets of the acquirer. The acquired and the acquiring firms are required to be handled on different bases in order to know who is acquiring whom. Rose and Hudgins (2008:634) opine that under this method, the acquirer records the acquisition at the price paid to the stockholders of the acquired company, by first valuing the acquired firm at market price plus goodwill, if the acquisition price is different from the market value. Merger process can also be viewed by determining the exact thing the acquirer is buying in the transaction. That is, whether it is assets or shares of stock. If it is by the purchase of assets method, the acquiring institution buys all or a portion of the assets of the acquired institution using either cash or its own stock. This cash is usually distributed to its shareholders in the form of a liquidating dividend by the acquired firm. The firm (acquired firm) is then dissolved. However, the firm selling its assets may continue to operate as a separate but a smaller corporation. This can be possible with some asset purchase deals. On the other hand, with the purchase of stock method, the acquired firm ceases to exist. The acquiring firm assumes all of its assets and liabilities. 2.7 MARKET REACTION TO ACQUISITION ANNOUNCEMENTS An acquiring firm typically pays a substantial premium stock price to complete a merger. This is very important because it persuades the target company’s board of directors to accept the offer and to fend off other potential acquiring firms. The market premium can increase the current price by fifty (50) percent, resulting in an immediate market reaction for both acquiring and target firms. The stock price of the target firm approaches the announced acquisition. The price of the acquiring firm on the other hand, usually can increase or decrease depending on how the investor react. For instance, the acquisition of AT &T by SBC in America, was announced on January 31st, 2005 and later approved by AT and T shareholders on June 30th of the same year. As expected, AT and T got an immediate bump in price of over ten per cent(10%) around the end of January. however, SBC’s stock price dropped over five per cent (5%). The February 22nd formal merger process announcement resulted in a rise in price for AT and T. over the following few months those relationship stayed relatively stable with AT & T generally up about 5% and SBC

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down about 5% . Hence, renewing the stock price reaction for a merger announcement is a useful first step for analysis. The market tends to take a sophisticated but skeptical view on mergers. 2.8 STEPS FOR A SUCCESSFUL MERGER A relatively high proportion of mergers or acquisitions turn out to be mistakes. This is because of variety of factors that often get in the way of mergers or acquisitions' success. Such factors include poor management, a mismatch of corporate cultures and styles, excessive price paid by the acquirer for the acquiring firm, a failure to take into account the customers feelings and concerns, and a lack of strategic 'fit' between the combining companies so that nothing meshes smoothly with minimal friction and the merged institution finds that it cannot move forward as a cohesive and effective competitor. 2.8.1 Steps Needed for a Desirable Merger Outcome (1) Personal Assessment by the Acquirer: Any firm that wants to achieve a successful merger must first of all evaluate its own condition, track record of performance, strengths and weaknesses of the market it already serves and its strategic objectives. This analysis will help the management and shareholders of the merging firms to know whether a merger would help to magnify each participating firm’s strengths and compensate for its weaknesses. (2) Evaluation of Potential New Markets and Potential Acquisitions: Merger focused firms should create a team that include the management and shareholders who have the needed skills for a successful evaluation of potential new markets and potential acquisitions. (3) Establishment of a Realistic Price for the Target Firm: Price for the target firm must be established based on the careful assessment of its project future earnings discounted by a capital cost rate that fully reflects the risks of the target market and target firm. Also, all prospective cost rate that the acquiring firm will have to meet such as the replacement of outdated or incompatible management information systems, upgrading poorly located or inadequately equipped branch offices, correcting salary inequalities that may exist between the two merging firms, etc. (4) Formulation of Combined Management Team: This team is needed to direct, control, and continually assess the quality of progress towards the consolidation of the two organizations into a single effective unit. This team is supposed to be formed once the merger is agreed upon. It consists of the capable managers from the two proposed firms. (5) Enhancement of Easy Flow of Information among the Managers: In order to achieve a successful outcome of a merger, reporting and communications system must be established between the senior, branch and line managers and staff. This makes the employees to have sense of belonging in the sense that they will believe that they have a part to play towards the mergers ultimate success. They are also made to believe that their efforts will be rewarded. (6) Creation of Communication Channels: Communication channels should be made available for both employees and customers of the proposed merging firms. This will go a long way in educating people on the reasons for the merger and the likely outcome or result of the merger. This helps to remove fear from anxious employees and customers who may be afraid of losing their jobs, payment of higher services fees, disappearance of familiar faces, etc. (7) Customer Advisory Panels: These panels are needed to evaluate the merged firms' community image service (i.e. social responsibility), marketing effectiveness pricing schedules, etc. 2.9 MODALITIES OF EXCHANGING SHARES IN MERGERS Once the exchange rate of shares is mentioned in mergers, what comes into the mind is the number of shares the merged firm will give up for a share in the new firm. In order to determine this some factors are considered. Such factors include the earning per share, the value per share and the value of the assets of the firms before merger. Emekekwue (2002:449), states that if the earnings per share approach is adopted in the merger arrangement, then the parties try to ensure that no member loses his earning as a result of the new arrangement. The shareholders should maintain and improve on their record of earnings because of the synergistic benefits that would accrue to them after the merger. However, the exchange rate of shares would be based on the relative earnings per share of the merged firms if and only if additional financial benefits are expected to accrue to the new organization after merger. 2.10 THE IMPACT OF MERGERS AND ACQUISITIONS ON FIRMS’ FINANCIAL STATEMENT AND RATIOS Generally, successful acquisition makes the acquiring company to expand in size and operations. It effects on specific balance sheet and income statement items as well as cash flows depend on the specific characteristics of the agreement. That is, it is based on the exchange of voting common stock versus cash debt instruments or a combination.

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2.10.1 The Positive Impact When Cash is Used. According to Giroux (2006:181), when an acquisition is in cash, the net asset position does not go up. Acquired assess are recorded at fair values which are offset by the cash paid. Balance sheet totals rise only to the extent that external financing is used, either debt or equity while asset and liability composition can change substantially. Cash ratios normally drop for the acquiring firm except when the acquisition was funded by new debt and equity. Then, the liquidity ratios partially offset by the working capital position of the acquisition. Since fair values are used and goodwill recognized, then, fixed assets and intangibles (financial assets like stock, shares, etc) can rise substantially. Equity on its own side remains unchanged in a cash or debt transaction. As a result, leverage ratios can rise. In the income statement of the combined firm, the acquisition’s operations are included only after the effective date of the merger. There is a rise in the revenues due to the acquired firm’s operations. 2.10.2 The Negative Impact However, mergers and acquisitions also have some negative impact on the financial statement of a firm. There is an increase in the operating expenses as a result of write-ups of inventory to fair value at the acquisition, especially, when the acquired firm used Last-In-First-Out (LIFO) method, higher depreciation and other allocations. This is because fixed and other assets, generally, are written up plus the potential write-down of goodwill and other intangibles. Again, additional interest expenses are recorded if the cash paid is from borrowed funds. Restructuring charges and other transaction charges can be large. Profitability and activity ratios can suffer as a result. In other words, earnings for the combined entity should be higher because of the acquired firm’s operations. Then, the aforementioned increase in expenses may decline. 2.10.3 The General Impact if Equity is Used Then, if equity is used instead of cash, the impact of acquisition on financial statement changes. For instance, assets and liabilities of the acquisition are restated to fair value and equity used is also recorded at fair value. Since cash is not used, liquidity is likely to be higher. Inventory is generally restated upward. Then property, plant and equipment, intangibles and other items are recorded the same whether cash or equity is used. Acquirer usually assumes the debt of the acquisition, hence, when equity is used, leverage ratios are usually lower. Interest expenses are usually higher when borrowed cash is used and lower when equity is used. However, equity dilution occurs when stock is used. 2.11 REGULATORY ISSUES ON MERGERS AND ACQUISITIONS 2.11.1 Reasons for Mergers and Acquisitions’ Regulation Obviously, mergers by big business can have a major impact on economic activities. One of these impacts is increasing market share and reducing competition which can involve potential anti-trust violations. Again, reduction in the competition rate may reduce new innovation. The anti-trust provisions deals with putting legislation in place to control the growth of “market power” exercised by monopolists and their restrictive practices. Monopolists have a tendency to hamper competition, promote predatory practices to detrimental levels as well as effect price discrimination, and others. Again some economic theorists opine that agents in an economy produce socially undesirable consequences known as “externalities” in their drive for economic wealth according to (Cote),the theorists argue that these externalities create detrimental effect which is passed on to the larger society. While pollution is perhaps the most commonly cited externality, horizontal mergers and acquisitions which may be beneficial to the integrating companies could produce socially undesirable consequences if such integration hinders competition or leads to monopolies. Non-horizontal mergers and acquisitions do not restrain competition and are therefore, not target for legal intervention on antitrust grounds. It is the fusion of actual and potential competitors usually warrants this of intervention. Consequently, federal regulators such as the Department of Justice, the Federal Trade Commission in US and Investment and Security Act (ISA), Security and Exchange Commission (SEC), etc in Nigeria review mergers by major corporations. These regulators may disallow the merger or require certain structural changes such as selling off of certain market segments to meet anti -trust criteria. Hence, mergers and acquisitions are regulated mostly for public interest. Giroux (2006:183-184) 2.11.2 The Regulatory Framework for Mergers and Acquisitions in Nigeria According to Ogwu (2002),in Nigeria, a legal framework exists for mergers and acquisitions just as it is in other jurisdictions. The legislations that have impact directly or indirectly on mergers and acquisitions are;

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i) The Investment and Securities Act (ISA) No 45 of 1999 and the rules and regulations of Security and Exchange Commission (SEC) pursuant to the ISA. ii) The Companies and Allied Matters Act (CAMA) 1990. iii) The Banks and other Financial Institutions Act (BOFIA) No 25 of 1991. iv) The Insurance Act. v) The Companies Income Tax Act. Investment and Security Act (ISA) This is the principal legislation regulating mergers and acquisition in Nigeria. It repealed the specific provision for the regulation of mergers and acquisitions in CAMA and transferred the relevant sections to the ISA. The objective of mergers and acquisitions regulation by the ISA is to prevent restraint of competitions and monopolistic tendencies. The ISA provides that all other laws shall be ready in conformity with it in respect of capital market issues. This confers the ultimate regulation of mergers and acquisitions on SEC. It also mandates the SEC to make rules and regulations for the market. Section 99- 122 of the ISA contains specific laws for regulating mergers and acquisitions. Provisions in ISA for Regulating Mergers and Acquisitions Provisions are made for reconstruction and mergers of companies as well as for the holding of court-ordered meetings. A majority agreement is required at the court-ordered meetings before approval of the commission is sought. If a scheme is approved by the commission and sanctioned by the court, it shall become binding on the companies and the court will by the order sanctioning the scheme provide the following. a) Transfer to the transferee of property and liabilities. b) Allotting or appropriation by Transferee Company of shares, debentures, policies or other like interests. c) Continuation by or against the transferee company of any legal proceeding pending. d) Dissolution without winding up of any transferee company. e) Provision for dissenting shareholders. f) Provision for incidental, consequential and supplemental matters. An order for dissolution or winding up of any transferee company shall not be made useless. h) Whole of undertaking and the property assets and liabilities of the transferor company are transfered into the transferee company. i) Court is satisfied of adequate provision by way of compensation or otherwise has been made with respect to the employees of the company. ENFORCEMENT OF THE LAW The ISA makes specific provisions for enforcement of law relating to mergers and acquisitions. Fines, penalties and terms of imprisonment are provided for violations. Administrative and judicial machinery are available for enforcement. They include: Administrative Proceedings Committee (APC) of the commission. Investment and Securities Tribunal (IST) Other superior courts. The provisions of ISA are quite extensive and cover registration, Monitoring, Investigations and Enforcement Act. RULES AND REGULATIONS OF SECURITIES AND EXCHANGE COMMISSION The rules and regulations prescribe the disclosure requirements and procedures. It covers the following areas: Scope of Regulations Public and Private Companies All Mergers and Acquisitions Approval given by the commission if not likely to retrain competition or create monopoly. Exemptions Holding companies acquiring shares for investment. Procedures for obtaining approval Pre-merger notice. Formal application for approval including agreements, terms and conditions. Post Approval Requirements Court order sanctioning the scheme to be filed with the commission notification of the completion of the exercise required. OTHER LAWS Companies and Allied Matters Act (CAMA) Provisions for regulating mergers and acquisitions repealed and transferred to ISA No. 45 of 1999. Companies and allied matters act (CAMA) provisions for regulating mergers and acquisitions repealed and transferred to ISA No. 45 of 1999. Ogwu (2004), still opines that CAMA, however,

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provides for incorporation of companies and Memorandum and Articles of Association and their certification by the Corporate Affairs Commission (CAC) for Mergers and Acquisitions purposes. Therefore, it is relevant. Bank and Other Financial Institutions Act ( BOFIA) This Act is relevant as it provides that the Central Bank of Nigeria (CBN) shall sanction the mergers and Acquisitions of Banks. SEC requires the non objection letter of the CBN to process bank mergers. The Insurance Decree No 2 of 1997 This Insurance Decree empowered the National Insurance Commission (NAICOM) to regulate mergers, acquisitions and combinations within the insurance sector. Part v section 30(1) under “Amalgamation and transfers of the Decree provides that no insurer shall: Amalgamate with, transfer to, or acquire from any other insurer any insurance business or part thereof, without the approval of the National Insurance Commission. Or without the sanction of the court: (i) Amalgamate with any other insurer carrying on life insurance business or workman’s compensation insurance business, or (ii) Transfer to or acquire from any other insurer any such insurance business or part thereof. Section 95 further states that: “The provisions of this Decree are without prejudice to the applications of the Companies and Allied Matters Decree 1990 to insurers under this Decree which are companies registered under that Decree, so however, that where any of the provisions of the Companies and Allied Matters Decree is inconsistent with any provision of this Decree, the provision of this Decree shall prevail, to the extent of that inconsistency”. As earlier stated, the Commission derives its power to approve, review and regulate all forms of business combinations from Securities and Exchange Commission (SEC) Decree 1988 and the CAMD 1990, while the Insurance Decree made reference to the CAMD in section 95 in the area of conflict, SEC Decree of 1988 was not mentioned. Hence, mergers and Acquisitions affecting insurance companies are still subject to the provisions of the SEC Decree by implication. This Decree later became the Insurance Act when the civilians took over the mantle of leadership in Nigeria. Which still provides for the sanction of mergers and acquisitions of insurance companies in the country. Companies Income Tax Act Mergers requires clearance of the Federal In-land Revenue Service (FIRS) with respect to tax due and payable under the capital Gain Tax Act. Conclusively the ISA is the principal law regulating mergers and Acquisitions in Nigeria, SEC’s Rules and Regulations make extensive provisions for regulating mergers and acquisitions pursuant to the ISA while other laws discussed above have impact on the regulations. However, there is need for various companies in Nigeria to keep on Implementing the laws for a better tomorrow. 2.11.3. THE RECENT DEVELOPMENT IN THE INVESTMENTS AND SECURITIES ACT (ISA) The month of June 2007 marked another significant point in the juridical development of the Nigerian capital market with the enactment of a new Investments and Securities Act (ISA) to replace the pre-existing 1999 Act. This enactment involved a long process of consultation starting with the inauguration of a panel of capital market experts under the Chairmanship of the House of Representative’s capital Market Committee Chairman, Honourable Ahmed Aliyu Wadada. The panel’s findings and recommendation gave rise to the enactment of ISA 2007. Positively, the new Act clarified some of the ambiguities found in the pre-existing 1999 Act in such areas as the scope of jurisdiction of the Investments and Securities Tribunal (IST), among others. The Act also redefined the relationship between the Securities and Exchange Commission (SEC) and other sector regulators particularly in the area of merger transactions, and the introduction into securities law in Nigeria of the concept of mandatory take over under sections 131 of the Act. Again, the Act effectively made the SEC an antitrust enforcer in addition to its traditional securities regulation function. Dimgba N. (2009: 85). He added that prior to the enactment of the new Act, SEC was mandated by section 99 of the ISA 1999 to approve mergers on the condition that such shall not lessen competition. As a result of the vague and fleeting way in which the requirement was worded, without further guidance, it was noted that SEC did not address competition issues in its action rather it always focused on assessing merger transactions by reference to the fairness of a merger deal on the totality of the shareholders of the merging companies which requirement was consistent with the traditional role of securities regulator such as Sec, though, this was not expressly mentioned.

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Finally, Chief Anthony Idigbe, a member of the panel of experts whose recommendation resulted in the ISA 2007 suggested that the real attention should be on the real policy intent of the law reform which said that the Act has many strengths, which if properly harnessed by the securities and Exchange Commission (SEC), will contribute to the development of the Nigerian capital market in line with global trends and international best practices rather than focusing on any drafting problems visible in the Act. 2.12 A BRIEF HISTORY OF THE CASE STUDY Oando Plc, formerly known as Unipetrol Nigeria Plc, is the second largest oil marketing company by revenues the downstream sector in Nigeria and is publicly quoted on the Nigerian stock Exchange (NSE). The company is a leading indigenous company with business interests in Ghana, Togo, Sierra Leone and the Republic of Benin. Oando Plc markets a wide range of products including premium motor spirit, Automotive Gas oil, Dual Purpose Kerosine, Aviation Turbine kerosene, low pour fuel oil, Lubricating oil and greases, insecticides, Bitumen, Liquefied Petroleum Gas, etc. The company was privatized in 2000 under the second phase of the Federal Government’s privatization programme. Ocean and Oil Services Limited became a core investor in Unipetrol by acquiring 30% of the government’s 40% equity stake in the company for N1.59 billion, with the remaining 10% sold to the Nigerian public. The investment of Ocean and Oil Services Ltd in Unipetrol was with the support of its International Technical Partners, Compania Espanola De Petroles (CEPSA), the second largest oil group in Spain, ranking among the top ten oil groups in Europe. In August 2002, following the international bid conducted by Agip Petroli Internaional B.V, Oando Plc acquired a 60% stake in Agip Nigeria Plc, paying seventy four million us Dollars ($74m) in cash. The balance of 40% equity was obtained through a share exchange on the Nigerian Stock Exchange in December 2002 making Oando Plc the second largest oil marketing company in the downstream sector of the Nigerian oil industry (with a market share of 23.59% as at the year end 2003 from 12.71% in 1997). The Main Aims for the Acquisition of Agip These include: - Making Oando Plc a leading player in the downstream oil and gas industry. - To provide an opportunity to create a formidable - Affording ownership of an extensive retail network with huge non fuel revenue (NFR) potential. - Providing complementary fit with other group activities. - Providing growth opportunities to meet future challenges and satisfy stakeholders. It was also noted that the merger would enable the company (Oando Nig Plc) benefit from economies of scale by enhancing its buying power and at the same time, position the company for the impeding vertical integration with upstream activities. The move to acquire Agip was seen as a defensive means used to prevent new entrants from encroaching on its market share. In December 2003, Unipetrol Nigeria Plc changed its name to Oando Plc. The company is operated along the following business units. Gas link, Nigeria Downstream, Oando supply and Trading and West African Operations Source: ARM Research: Stock Report September 20, 2004.

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REFERENCES Akele S.O. (2004), “The Regulatory Imperative for Mergers and Acquisitions in Nigeria.” Vanguard.Dec.6 p17. CBN Annual Report & Statement of Accounts for the Year Ended 31st December 2005.p.52 Dimgba Nnamdi, (2009), “Mergers Control by Securities and Exchange Commission: A comparative analysis of Investment and Securities Acts 1999 and 2007”.The Guardian, Tuesday. September 29, 2009. P. 84. Emekekwue,P (2002), “Corporate Financial Management”. Kinshasa, African Bureau of Educational Sciences. Garioux G.(2006), “Earnings Magic and the Unbalance Sheet. The Search for Financial Reality”. Haboken, New Jersey. John Wiley and Sons Inc. Henry David (2002), “Mergers: Why most big deals don’t pay off“. Business Week,14 October.p.15 Ibenta, Steve (2005), “Investment Analysis and Financial Management Strategy”. Enugu. The Institute of Development Studies. University of Nigeria Enugu Campus. McClure, B (2009), “Mergers and Acquisitions.” www.investopedia.com Ogwu, David(2004), “Legal Framework for Mergers and Acquisition”. A Presentation at the Central Bank and West African Institute for Financial and Economic Management Retreat on Mergers and Acquisitions in the Banking Industry. Nicon Hilton Hotel, Abuja. Rose and Hudgins (2008), “Management and Financial Services”. Seven Bank Edition. New York: McGraw Hill / Irwin Companies. The Development Department of SEC “ Issues in Capital Market Development”. Vol II’ Abuja, Central Business District. Ward Keith (1993), “Corporate Financial Strategy”. Oxford.-Butter-Worth Heinemann Ltd.“What is a Hostile Takeover?” www.wisegeek.com

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CHAPTER THREE RESEARCH METHODOLOGY It is essential to specify the procedures for collecting and analyzing the data needed to help solve the problem at hand such that the difference between the cost of obtaining various levels of accuracy and the expected value of the information associated with each level of accuracy is maximized. These procedures, according to Ozo, J.U. et al (1999:83), involve decisions on what information to generate, the data collection method, the measurement approach and the method of data analysis. 3.1 RESEARCH DESIGN Since this research involves the use of already existing data with unmanipulated relevant independent variables, descriptive research method is adopted. According to Ozo et al (1999:178), descriptive analysis is concerned with summarizing and describing numerical data and is used in answering research questions. Hence, the method does not call for hypotheses testing. As a result, only the research questions are to be answered. 3.2 SOURCE OF DATA The use of secondary data was purely employed in this research work in order to reduce chance of bias associated with primary source. These data were extracted from different relevant websites such as www.investopaedia.com ; www.oandoplc.com ; www.cenbank.org (the CBN website); www.nigeriabizinfo.com ,etc and most importantly, the Oando Plc annual reports for the years under review. Not only these, journals, textbooks, and presentation reports were consulted for a review of literature. 3.3 METHOD OF DATA COLLECTION The objectives as well as the nature of research determine the method of data collection to be adopted. For the fact that the study is narrowed to one firm with the aim of generalizing the findings made, the data used were mostly gathered from pre-merger and post-merger financial reports of Oando Plc for accurate results. 3.4 THE POPULATION OF THE STUDY AND THE SAMPLE SIZE Generally, the population of the study is meant to include all the firms in Nigeria that adopted the mergers and acquisitions option as a survival or growth strategy. But for the purpose of accuracy, cost reduction, etc, the study is restricted to a firm in the downstream sector of oil and gas with special reference to Oando Plc (formerly known as Unipetrol Nigeria Plc). Consequently, the sample size comprises the three year pre-merger (1999-2001) and three year post merger (2003-2005) periods. These years were selected for proper trend analysis in order to achieve the set objectives of the study. 3.5 DATA ANALYSIS MODEL As a result of the nature of the study, ratio analysis models and percentages were adopted for authentic analysis of the financial reports of the case study for the six years under review. In evaluating Oando Plc, the profitability ratios were used, these include; Return on Capital Employed (ROaCE) Return on Equity (ROE) Gross Profit Margin (GPM) Net Profit Margin (NPM) Earnings Per Share (EPS) Dividend Per Share (DPS) Return On Capital Employed(ROCE): This ratio seeks to ascertain the level of profit made by the firm as a going concern. It does not concern itself with external investments. It is expressed as ROCE = PBIT – income from external investments Share capital + debt + reserve – external investments ii) Return On Equity (ROE): The level of income that is due to equity holders is measured using this ratio. It thus, shows the relationship between earnings and net equity. Equity here is the same as ordinary share capital plus reserves. This return is measured on an after tax because equity holders would not be entitled to any return until the company has paid its tax to the government. It has the following formula: ROE = Net profit after tax Total equity iii) Gross Profit Margin (GPM) This ratio measures the profitability of the firm in relation to the sales. It takes cognizance of gross profit. According to Emekekwue (2002:474), it is preferable to net profit margin in measuring firm’s profitability because gross profit has a closer relationship to sales than net profit. The ratio is expressed: GPM = gross profit

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Total sales iv) Net Profit Margin (NPM) This ratio like gross profit, measures the profitability of the firm in relation to the sales. It is only different from gross profit because it takes cognizance of net profit. Mathematically, it is expressed as, NPM = Net profit before tax Total sales v) Earnings Per Share (EPS) This ratio measures the amount of earnings that is attributed to one share. The number of shares that is utilized is the issued and paid up capital as at the end of the recorded date not the authorized share capital. EPS = profit after tax Total number of shares outstanding vi) Dividend Per Share (DPS) Shareholders are entitled to the amount of earnings distributed as cash dividends. The maximum amount to be declared as dividend is usually determined by the government or future financial requirement. It is expressed as DPS = dividend pay out Total number of shares outstanding For clearer understanding of the distribution of the variables, the researcher also employed the measure of dispersion (Standard Deviation) REFERENCES Ozo et al,(1999), “Introduction To Project Writing For Business and Financial Studies”. 1st Edition. Enugu: Sunny Enterprises. Nweke, Eze A. (1999), “Practical Approach to Research Methods and Statistics in Education Management and Social Sciences”. Onitsha: Onwubiko Printing and Packaging Industry Ltd. Nwude, C. (2004}, “Basic Principles Of Financial Management”. A First Course (2nd Edition) . Enugu: Chuke Nwabude Nigeria. CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION This chapter is concerned with the presentation, analysis and interpretation of the secondary data obtained from five year pre-merger and post-merger financial summaries of the organization under study. The data obtained from the Annual Reports of Oando Plc are presented in the tables below for proper analysis and interpretation of results using ratio model of analysis and percentage formula. Emphasis was also laid on those questions that are closely related to the research objectives. That is, the research questions. Standard deviation as a measure of dispersion was also employed to make the distribution of the variables in the data clearer as earlier stated. Also, the computation of the results in the pre-merger and post merger profitability ratios tables of Oando Plc for the years under study are shown below respectively. The tables are analysed and the results obtained are interpreted accordingly.

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41.29

11.77

2.63

66.58

493

449

SOURCE: Annual Report (2003) Table 4.1.4 Oando Plc’s Three Years Post Merger Profitability Ratios

SOURCE: Annual Report (2003) PRE -MERGER

PROFITABILITY RATIOS COMPUTATION 1999 2000 2001 N’000 N’000 N’000 ROCE = 726,371×100 801,127 × 100 514,021× 100 1,280,530 1,244,786 4,031,851 = 56.72% = 64.36% = 12.75% GPM = 1,962,244 × 100 2,518,675 × 100 3,344,383 × 100 15,036,354 20,181,688 25,183,604 = 13.05% = 12.48% = 13.28% NPM = 560,694×100 528,147 ×100 375,444×100 15,036,354 20,181,688 25,183,604

Year ROCE GPM NPM ROE EPS DPS % % % % Kobo Kobo 2003 31.19 11.73 1.25 13.34 245 200 2004 8.20 8.24 1.04 4.49 156 200 2005 10.82 10.89 1.13 6.49 240 250 Average 16.74 10.29 1.14 8.11 214 217 Industrial Average

41.29

11.77

2.63

66.58

493

449

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= 3.73% = 2.62% = 1.49% ROE = 560,694 ×100 528,147 × 100 375,444 ×100 1,378,144 1,577,978 4,722,983 = 40.68% = 33.45% = 7.95% EPS(adj)= 560,694 528,147 375,444 326,159,312 326,159,312 326,159,312 = 172kobo = 162kobo = 115kobo DPS(adj) = 234,375 351,563 351,563 326,159,312 326,159,312 326,159,312 = 72kobo = 108kobo =108kobo POST-MERGER PROFITABILITY RATIOS COMPUTATION 2003 2004 2005 N’000 N’000 N’000 ROCE =1,540,285 ×100 1,518,951 × 100 2,102,921×100 4,938,897 18,520,285 19,435,842 = 31.19% = 8.20% = 10.82% GPM = 7,444,985 × 100 8,487,740 ×100 13,247,223×100 63,447,251 103,062,711 121,591,635 = 11.73% = 8.24% = 10.89% NPM = 797,710 × 100 890,802 × 100 1,375,804×100 63,447,251 85,852,713 121,591,635 = 1.25% = 1.04% = 1.13% ROE = 797,710 × 100 890,802 × 100 1,375,804 ×100 5,981,722 19,823,858 21,190,995 = 13.34% = 4.49% = 6.49% EPS = 797,710 890,802 1,375,804 326,159,312 572,300,897 572,676,803 = 245kobo = 156kobo = 240kobo DPS = 652,319 1,144,602 1,430,752 326,159,312 572,300,897 572,676,803 = 200kobo = 200kobo = 250kobo NOTE: ROCE = Return on Capital Employed; GPM =Gross Profit Margin; NPM = Net Profit Margin; ROE = Return on Equity; EPS=Earnings Per Share; DPS= Dividend Per Share. PBIT = Profit Before Interest and Tax 4.2 RESEARCH QUESTIONS ANALYSIS RESEARCH QUESTION 1 ̀

Is there any change in the Return on Capital Employed (ROCE) of Oando Plc in the post-merger period? In order to answer this research question, the percentage change of t he pre-merger firm’s average from the industrial average will be calculated. The firm’s three years pre-merger average in the RECO was 44.61% while the industrial average was 41.29%, Therefore, the percentage change = 44.61-41.29 × 100 41.29 1 = 8.04% This indicates that there was a positive percentage change of 8.04% in the ROCE of Oando Plc from the industrial average in the pre-merger period under review.

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Similarly, the percentage change of ROCE post-merger firm’s average from the industrial average is calculated thus: 16.74-41.29 × 100 41.29 1 = (24.55) × 100 41.29 1 = (59.29%) The result above shows that the ROCE reduced by 59.46% from the industrial average in the post-merger period. To determine how the observations in the data (ROCE of each year) deviated from the mean (firm’s average), measure of dispersion was adopted by the researcher. Table 4.2.1 Pre-merger Standard Deviation from the Industrial Average Year (f) x x � x - x� (x - x�)2 f(x - x�)2

1999 56.72 44.61 12.11 146.65 146.65 2000 64.36 44.61 19.75 390.06 390.06 2001 12.75 44.61 (32) 1,024 1,024 Total 133.83 1,560.71 Source: Field survey( 2010) � =�� 2 �� ⁄3 = 22.81% The result above reveals that the ROCE in each pre-merger year under review deviated from the firm’s industrial average by 22.81%. Standard Deviation of Post-merger years ROCE from the Firm’s Average Year(f) x x � x – x� (x – x�)2 f(x – x�)2

2003 31.19 16.74 14.45 208.80 208.80 2004 8.20 16.74 (8.54) 72.93 72.93 2005 10.82 16.74 (5.92) 35.05 35.05 Total 50.21 316.78 Source: Field Survey ( 2010) � =�� 2 �� = �� 10.28% From the standard deviation calculated for both pre-merger and post-merger ROCE, it is shown that the ROCE in pre-merger were more spread out than that of the post-merger period. This collaborates with the result got using percentage method. RESEARCH QUESTION 2 Does merger and acquisition have a significant effect on the Earnings per Share (EPS) of Oando Plc ? Using the percentage method to answer the question, the firm’s EPS average for the pre-merger period under review was 150kobo while the industrial average was 493kobo. Therefore, the percentage change = 150 – 493 × 100 493 1 = (69.57%) Similarly, the post merger EPS percentage change is calculated thus:

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214 – 493 × 100 493 1 = (56.59%) From the results above, there is a negative percentage change in the firm’s EPS average from the industrial average both in the pre-merger and post-merger periods under review. But the negative percentage change reduced by 12.98 % (i.e. from -69.57% to -56.59%) after the merger. This shows that mergers and acquisitions have a positive impact in the EPS of Oando Plc. Computation of Pre-merger Standard Deviation of Firm’s Three Years EPS from the Average EPS. Year f x x � x – x� (x – x�)2 f(x – x�)2

1999 1 172 149.67 22.33 498.63 498.63 2000 1 162 149.67 12.33 152.03 152.03 2001 1 115 149.67 (34.67) 1,202.01 1,202.01 Total 3 449 1,852.67 SOURCE: Annual Report (2005)

Variance = �2 = �� 2

�f = 1,852.67⁄3 = 617.69 � =�617.69 = 24.85% Three Computation of Post-merger Standard Deviation of Firm’s Years EPS from the Average EPS.

Year F x x x - x (x - x)2 f(x - x)2

2003 1 245 213.7 31.3 979.69 979.69 2004 1 156 213.7 (57.7) 3,329.29 3,329.29 2005 1 240 213.7 26.3 691.69 691.69 Total 3 641 5000.67

Source: Field Survey ( 2010) Variance = �2 = �� 2

�f = 5000.67 / 3 � SD = � = �1,666.89 = 40.83 % From the result, each post merger EPS deviated more from the firm’s average than that of pre merger. Hence, the variables were more spread out in the post merger period. RESEARCH QUESTION 3 Did the Gross Profit Margin of Oando Plc appreciate after the mergers and acquisitions experience? With the percentage method still employed, the research question is answered as follows: The firm’s average GPM in the pre-merger and post-merger periods under study were 12.94% and 10.29% respectively while the industrial average was 11.77%. � the percentage change in the GPM before merger from the industrial average was 12.94-11.77 × 100 11.77 1 = 9.94% While that of post-merger was 10.29 -11.77 × 100 11.77 1 = (12.57%) This result indicates that the GPM of Oando Plc increased by 9.94% in the pre-merger period but reduced by 12.57% in the post-merger period, relative to the industrial average. Standard Deviation of Pre-merger Years GPM from the Firm’s Average

Year f x x (x – x) (x – x)2 f(x - x)2

1999 1 13.05 12.94 0.11 0.0121 0.0121 2000 1 12.48 12.94 (0.46) 0.2116 0.2116 2001 1 13.28 12.94 0.34 0.1156 0.1156 2002 3 38.81 0.3393

Source: Field Survey ( 2010) Variance = �2 = �� 2

�f = 0.3393/ 3 SD = � = �0.1131

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= 0.3363 � 0.34 % Similarly, the Net Profit Margin of the post-merger years deviated from the firm’s average by 1.49 % showing that the variables were more spread out in the post- merger period than in the pre-merger period under review. CHAPTER FIVE SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION Adoption of mergers and acquisitions as a corporate strategy for growth and expansion is a step on the right direction. As earlier said, Oando Plc among other reasons, adopted this strategy to enable it benefit from economies of scale by enhancing its buying power as well as to position itself for the impending vertical integration with upstream activities. Apart from synergistic value which Oando stands to derive, it adopted the strategy as a defensive measure to prevent entrants from encroaching on its market share. Based on the result of the research question on the Return on Capital Employed of the company in both periods of pre-merger and post-merger as against the industrial average, there was a positive percentage change of 8.04% in the pre-merger period while in the post-merger period, it reduced by 59.46% from the industrial average. This according to the Assets and Resource Management Company Ltd ( ARM) Stock Report was as a result of -the protracted suits against the Agip purchase, -An exceptional charge of N1.72 billion expended on the staff voluntary separation scheme to Agip staff following the merger. Again, the percentage decrease in the post merger average GPM 12.57% from the industrial average as against 9.94% increase in the pre-merger period shows that there was a decline in the GPM of the post merger years under review. Not only these, table 4.1.3 and 4.1.4 reveal that there was a decline in the average NPM from 2.61% in the pre-merger period to 1.14% in the post merger period. All these indicate low profitability. On the other hand, Oando’s EPS average for the pre-merger period (1999, 2000, and 2001) was 150kobo while that of post-merger period under review (2003,2004 and 2005) was 214kobo as against the industrial average of 493kobo. This reveals a 56.59% and 69.59% decrease from the industrial average respectively. Though, 214kobo (69.57%) is in negative, there is an improvement of 12.98 % (69.57%-56.59%) in the post-merger period. The company’s Dividend Per Share (DPS) also increased from 96kobo in the pre-merger period to 217kobo in the post-merger period (see table 4.1.4) The deterioration in most of the Oando Plc’s profitability matrices/ratios particularly, the ROCE, ROE, GPM and NPM in the post-merger period under review as analyzed above, was due to the aggressive restructuring activities carried out by the company’s management over the years in order to protect its position in the downstream oil and gas industry against old competitors and new entrants. Such activities were carried out in the areas of working capital, human resource development, operation, marketing and retail network upgrade. (ARM Research Report, 2004). However, the improvement in the EPS and DPS despite the decline in the NPM and GPM as indicated above is clear evidence that the company protects the interest of its shareholders even in adverse condition. There is no doubt that the company engaged in debt financing for its expansion in the post -merger years under review since its working capital deteriorated from N431million in 1999 to N11.83 in 2003. (ARM Search: Stock Report 2004) From recent financial reports (2008 and 2009) , Oando has improved very well in its profitability. In other words, mergers and acquisitions made an impact in the company’s profitability not at the early stage of the merger but in the long run.

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RECOMMENDATIONS From the findings made in the study, the researcher highly recommends that companies should adopt the corporate growth strategy of Mergers and Acquisitions with its packaged benefits. It is obvious that maximizing profit in a competitive market is very challenging and calls for financial sacrifices in the short run as envisaged in the analysis of Oando Plc’s financial report. Though, there was a decline in the profitability of the firm at the early stage of the acquisition, its resources was utilized efficiently and yielded higher profit in the long run. This shows that mergers and acquisitions, like every other business strategy, involves risk which when taken with the necessary precautions, maximizes profit as well as enhances growth in the long run. The researcher also recommends that subsequent researchers on this topic or a related topic should find out the extent of the adoption of mergers and acquisitions by other sectors in the country other than oil and gas sector and banking sector and its effect on them in order to make a generalized findings on the impact of the corporate business strategy on firms in Nigeria.

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CONCLUSION Acquisition of Agip by Unipetrol to give birth to Oando Plc was not a step in the wrong direction but a right decision. Having seen the benefits , banking industry followed suit and has recently produced strong banks that can stand the test of time owing to the fact that quality is what matters not quantity. Therefore, other sectors should be part of this corporate strategy to ensure a sustainable growth in the Nigerian economy as a whole.

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BIBLIOGRAPHY Akele, S.O. (2004), “The Regulatory Imperative for Mergers and Acquisitions in Nigeria” Vanguard. Dec.6 p. 17. CBN Annual Report and Statement of Accounts for the Year Ended 31st Dec 2005. p. 52 Dimgba, Nnamdi (2009), “Mergers Control by Security and Exchange Commission: A Comparative Analysis of Investment and Securities Acts 1999 and 2007”. The Guardian, Tuesday September 29,2009.p 84. Emekekwue,P (2002), “Corporate Financial Management” Kinshasa: African Bureau of Educational Sciences. Giroux, G. (2006), “Earnings Magic and the Unbalance Sheet.The Search for Financial Reality”. Haboken ,New Jersey: John Wiley and Sons Inc. Henry, David (2002), “Mergers: Why most big deals don’t pay off.”Business week, 14 October .p. 15 Ibenta, Steve (2005), “Investment Analysis and Financial Management Strategy”. Enugu: The Institute of Development Studies. University of Nigeria Enugu Campus. McClure (2009), “Mergers and Acquisitions” www.investopedia.com Nweke, Eze .A (1999),“Practical Approach to Research Methods and Statistics in Education Management and Social Sciences”.Onitsha: Onwubiko Printing and Packaging Industry Ltd. Nwude (2004}, “Basic Principles of Financial Management.”A First Course (2nd Edition) . Enugu: Chuke Nwabude Nigeria. Ogwu, David (2004), “Legal Framework for Mergers and Acquisitions.” A Presentation at the Central Bank and West African Institute for Financial and Economic Management Retreat on Mergers and Acquisitions in the Banking Industry. Nicon Hilton Hotel, Abuja. Ozo et al,(1999), “Introduction To Project Writing For Business And Financial Studies”. 1st Edition. Enugu: Sunny Enterprises. Rose and Hudgins (2008),“Management and Financial Services”, Seven Bank Edition. New York: McGraw Hill/Irwin Companies. The Development Department of SEC. “Issues in Capital Market Development” Vol. II Abuja, Central Business District. “Twenty –five (25) Billion Naira Capitalization. The Journey so fa and its Implication on the Nigerian Economy. www.nigerianbusinessinfo.com Ward, Keith (1993), “Corporate Financial Strategy.” Oxford: Butter- Worth Heinemann Ltd. “What is a Hostile Takeover?” www.wisegeek.com

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Five Year Financial Summary

Company

Balance Sheet

Property plant and equipment 13,788,755 13.149,388 11,415.060 Intangible assets 13.445,903 12,501,645 9.548.197 Investment In associates 37,709 Long term Investments 2.080.320 1.755,153 1,265.864 Long term receivable 326,654 60,346 385,093 Net current liabilities (5,323.998) (3,925.513) (534,064) Borrowings and other non-current liabilities (1,403,261) (1,449,796) (1,374,251 ) Deferred taxation (662,199) (620,446) (458,920)

Retirement benefit obligation (138,254) (279,782) (460,830)

� 22,113,920 21,190,995 19,823,858

Share capital 286,150 286,150 286.150

Share premium 15,980263 15.980,263 15.980263 Revaluation reserve 2,423,923 2.423,923 2,423,923 Reserve for bonus Issue

Retained earning,s 3.423,584 2.500,659 1.133,522

� 22,113,920 21,190,995 19,823,858

Profit and loss account

Turnover 132,397,373 121.591,635 85.852,713

Profitl(loss) before taxation and exceptional item 2,247,246 2,102,921 (386,711)

Exceptional Item 608,345 1,375,207

Taxation 501,914 F27,117) (97,694)

Profit after taxation 2.353.677 1,375,804 890.802

DIVidend- 1.430.752 1,144.602 652.319

Per share data

Weighted average number of shares 572,301 572,301 367.183 Potential ordinary shares Basic earnings per share (kobo) 411 240 243 Diluted earnings per share 411 240 243 Dividends per share (kobo) 250 312 200 Net assets per share (kobo) 3,864 3.703 5.399 Dividend cover 0.96 times 0.78 times 326.159 239,640 � 29.651 245 25

245 22

1.834 2,776 1.22 times

�11,474,700 11.177,281 10.078.653 10,670.888

1,042.825 1.059,542

297.772 497,664 (11,013,652) (8,596,782) (5,066,457) (7,516,060) (443,556) (525,824)

(388,563) (214.481)

5,981,722 6,552,228

163.079 148,254

1,269.427 1,269,427

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3.121.124 3,121,124 40,770 14,825 1,387.322 2,098,598

5,981,722 6,652,228

63.447.251 47,172.727

37,345 2,049,806

982.062 (1,720,834)

(221,697) (269,012)

797.710 59.960 Note: Earnings. dividend and net assets per share are based on the weighted average number of shares in issue for the year. After tax profits have been used as numera- t?!..s f0#r co.mput,n9 e~rnings per share. ~""'''''''~~~=~~-~~~~

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Turnover Cost-'of saJes ��

�Gross profit Administrative e~~ 9$�"&'�&%'J��

!�5%%�!��Rent and other operatlrtg income

!R�G�%5"��Interest received �(!�!&!��Trading profit :�#G#!$G5(!��

N�9!/''#/'5&;��1nterest payable and similar charges Profit on ordinary activities before taxation and exceptional ��

�R$#�/!'$��Exceptional item Amortisation ��/�� @ ��O�/��profit on ordinaryactivifies before. taxaijon ' Taxation Profit 011 ordinary actMties after :taxation and exceptional item. &(�G(%#��Appropriations: Reserve for bonus jssUe � ��

Proposed dividend Retained profit transferred to general Jeserve' '~.

Earnings per share (kobO) Dividend per share (kObo) The accountiog policies 55�pages 34 MQ notes.on ~. I pages "'�to 46 form 99 � G��part of th~ ��G>R��/��GG�G��/�� -- 9GGG�'-. /GG:�~ ' ...•

!55��::�::::�:�::�::::��

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Fixed assets (�� /#&#�&55�� /�&&�!'��

Investments �5�� 5�(�5'%�� R5$(�$#!��

Long ann prepaymenl$ !(&�&&!�� #(&�%%#��Deferred charges %��&'5��

Goodwill on acquisition �� 5�5&'/%$"�� 5�%5(/�5'��

Current assets

Stocks �!�� !�#5!�$'%�� !�5"5/$"&��Oebto/$ and prepayments �"�� /%�'((�#5&�� #��!"�$'#��Oue from other group oomparnes �#�� !"��'!�� $"/'%'��

Bank and cash. balarioes �R"&5/('"�� $/$'&/�#"��

� � �5:�(5#/��$'�� /'($��"!��

Current liabilities

Tax =�� '�� 5�#�(�� %%/!5%��Short tenn loans �$�� %/''5�G5!�/X/�� $/!�"�#(%��Creditors and accruals �%�� #�"$%�"#�H�� $/��/�&%��

Dividend payable %$"�"$$�� 5"%��

� � � !5�#(�/(�#��

Netturrenlliabilities S��((%�5%5;�G/�� S'/$(%�&'!P��

Creditors due after one year �&�� S$/5%%�#$&;�� 9&/$�Z/5%5;��

PrOvision �I ��and cha~

Staff gl'Btuity �'�� 9"�'/$%";�� 9!�#�#'�;��

Deferred ��<�� 9##"�$$%;�� 9#!$�'!#;��

� � 9'"!/��(;�� 9%#5�"5$;��

NET ASSETS $/(&$�$&$�� %�%$!�!!'��

FINANCED 04G�� Share >�=�� !5�� 5"/5&�(�� , �#'/!D#��Share premium account !�� /!%(��#!&�� /!%(/#!&��Revaluation reserve "��!��!#�� "��!�/�!#��Reserve for bonus issue M�� #�'!$��G.eneraJ reserve !!�� "'��&$�� !�5('�$('��

TOTAL CAPITAL AND RESERVES $�(&$�$&$�� %�%$!�!!'��

The financial statements and notes on pages 38 to #%�were approvad by �?��Board of Directors on

"�May !55#/�and signed' on its behaff by~

DIRECTORS7 �

The accounting poIic(es on pages 34and notes on pages "'�to #%��an integral part of these financial statemeots.

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�OANDO PLC

PROAT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 December 2004

NOTE

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2004 II 2003

3M';' �� =�� /-" HMT MH�� T�/�:H:>�� =�;��R�R4�::H��

�

�The accounting policieS on pages 26 �5!&�and notes on pages 13 to 21 form an integral part of these financial statements. Turnover Cost of sales Gross profit Administrative expenses Share of profit of associated companies other income Trading profit Interest payable and similar charges (net) Profit on ordinary activities before taxation and exceptional item Exceptional item Amortisation of intangible assets Profit on ordinary activities before taxation Taxation Profit on ordinary activities alter taxation and exceptional item Minority interests, Profit attributable to group shareholders General reserve brought forward (restated) Appropriations: Reserve for bonus issue Dividend General reserves carried forward Earnings per share (adjusted) (kobo) Dividend per share (adjusted) (kobo)

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103,062,711 (94,574,971) 8,487,740 (5,824,880) 2,662,860 7,460 713,179 3,383,499 (2,613,459) 770,040 1,375,207 (530,455) 1,614,792 (143,647) 1,471,145 (314,669) 1,156,476 1,457,279 (1,144,602) 1,469,153 !5!��

�200

85,852,713 (78,391,947) 7,460,766 (5,143,812) 2,316,954 7,460 203,344 2,527,758 (2,384,014) 143,744 1,375,207 (530,455) 988,496 (97,694) 890,802 890,802 1,387,322 (1,144,602) 1,133,522 156 200

68,492,356 (60,632,012) 7,860,344 (5,696,067) 2,164,277 9,577 1,199,436 3,373,290 (2,707,600) 665,690 982,062 (530,455) 1,117,297 (241,599) 875,698 (27,129) 848,569 1,302,612 (40,770) (652,318) 1,458,092 148 114

63,447,251 (56,002,266) 7,444,985 (5,390,108) 2,054,877 9,577 1,195,881 3,260,335 (2,692,535) 567,800 982,062 (530,455) 1,019,407 (221,697) 797,710 797,710 1,282,701 (40,770) (652,319) 1,387,322 139 114

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OANDO PLC

BALANCE SHEET

AS OF "��December !55#�� N'OOO

!55#��

'I !55"��

NOTE ; •• 11I. Comp,apy ;;'11;' Company

Fixed assets �5�� &5!�$#!�� #�$�5%5�� %'%�!(#�� #&#�&55��

Long term Investments �� $#��'"�� "5"�$&"�� $��%%"�� 5#!�'!$��

Intangible assets �!�� (�&!"��!(�� (�$#'��(&�� 5�!5$�'&(�� 5�5&'�%$"��

Long term receivable �"�� "�&(&�$!�� "'$�5("�� !�(!%�"!#�� !(&�&&!��

Current assets

Stocks �#�� $�$5%�%(�� "�'&!�"%#�� !�%%$�$'$�� !�#5!�$'%��

Debtors and prepayments �$�� !!�#!'�'"%�� "�!�&�!'(�� &�'&#�#�"�� &��!�((&��

Bank and cash balances (�'!��"#!�� %�!$'�'#%�� $5(�!&�� "&5�('"��

"&�&$%�'%(�� !"�"#'�#((�� !�5#(�!%(�� 5�''%�$%%��

Current liabilities Creditors and accruals �%�� !&�!%"�%"'�� '�%"$�"5&�� $�"�%��&!�� #�"$%�"#!��

Short term loans �&�� (�5"&�(%"�� #�5(5�#$&�� %�''5��5!�� %�''5��5!��

Dividend payable ��#%�"!"�� #$�%"'�� %$#�5&�� %$"�"$$��

Tax payable (�� !"�5�5�� %�� (�'#&�� 5�#�(��

"&�#&5�("#�� !"�''!�$%"�� !!�'%5��(!�� !��(55�!�'��

Net current assets/(Iiabilities) !'$�("$�� 9$"#�5%#;�� 9�5�'�5�(!";�� 9��5�"�%$!;��

Creditors due after one year �'�� "�5$'�$$�� "&#�!$�� %�!&%�#$&�� $�5%%�#$&��

Provision for liabilities and charges

Sta ff gratuity �(�� #&5�##&�� #%5�'"5�� "''�$%"�� "''�$%"��

Deferred taxation !5�� #%(�%"&�� #$'�(!5�� ##(�5&&�� ##"�$$%��

(#5�5'#�� (�(�&$5��

� '"&�%#5��'"!��(��

NET ASSETS !��$%#�%&$�� (�'!"�'$'�� %�(#$��#5�� $�('��&!!��

FINANCED BY:

Share capital !�� !'%��$5�� !'%��$5�� %"�5&(�� %"�5&(��

Share premium account !!�� $�('5�!%"�� $�('5�!%"�� !%(�#!&�� !%(�#!&��

Revaluation reserve !�#!"�(!"�� !�#!"�(!"�� "��!��!#�� "��!��!#��

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!5��$(�#'(�� (�'!"�'$'�� %�5$!�#(�� $�('��&!!��

Minority interest !#�� #5$��'%�� '(!�%#(��

TOTAL CAPITAL AND RESERVES !��$%#�%&$�� (�'!"�'$'�� %�(#$��#5�� $�('��&!!��

The financial statements and notes on pages �5�to !��were approved by the Board of Directors on !%�April !55$�and signed on its behalf by:

DIRECTORS: The accounting policies on pages 8 to 9 and notes on pages �"�to !��form an integral part of these financial statements.

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Consolidated Balance Sheet h0 y,'iY 3��""d 31 >��/�T9EH/�~(C' NDOO ~ ".;,",#>,~-~~ NOTE Group Company Group Company Non-current assets Property, plant and equipment #�� #�"(%�55"�� "�&''�&$$�� "�%'(�'5(�� "��#(�"''��

Intangible assets $�� #�$�#�$$�� "�##$�(5"�� "R"!%�'&�� !�$5��%#$��

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Loan receivable �5T�� !$��"#�� !$��"#��

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� $'�(5"�(!"� �"#�"!5�5�$�� $��5$��%(�� !&�!#(�$�5��Current liabilities Creditors and accruals �� !"�%55�"�"�� $�!%5�&!(�� '�5�!/$$!�� (�(5(��%$��

Dividend payable ��(�5�� (�5�� 5"$�� 5"$��

Tax payable !%�� (!'/(5!�� &!'�("�� %"!�%&'�� $$"�$$5��

Borrowings �!�� #5�5$"�&!"�� !"�%$!�##"�� "%�%%'�&(5�� !5�&��!&"��

� � %#R$'�M�'#'�� "(�%##�5�"�� $$/"�$�5$$�� "��&$�5!"��

Net current (liabilities) 9$�%'5�(!$;�� 9$�"!"�((';�� 9#�!5(�''%;�� 9"�(!$�$�";��Non-current liabilities Borrowings ��$$��"(%�� "&$�!!$�� i �(&&�'$"�� &"'�(!'��

Other non-current liabilities �"�� &5%�##'�� %$$�($&�� &$'�5#%�� &�5�'%'��

Deferred taxation �#�� %'&�!!#�� %%!��((�� %"'�&(5�� %!5�##%��

Retirement benefit obligation �$�� "'�!$#�� "'�!$#�� !&(�&'!�� !&(�&'!��

Provision #�� "&!�5&(�� "&!�5&(��

� � "1�$L/#5�� !�!5"�&�#�� "�%$#�#&�� !�"$5�5!#��Net Assets 24,.!~6!.211!"~,., 22,113,920 22,725,191 21,190,995 Capital and Reserves attributable to equity holders Share capital �%�� !'%��$5�� !'%��$5�� !'%��$5�� !'%��$5��

Share premium account �&�� $�('5�!%"�� $�('5�!%"�

� �$�('5�!%"�� $�('5�!%"��

Revaluation reserve !�#!"�(!"�� !�#!"�(!"�

� !�#!"�(!"�� !�#!"�(!"��

Retained earnings �'�� "�'$"�"((�� "�#!"�$'#�

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Minority interest �(�� '$!�$G$�� #!&�$!#��Total Equity 24,396,270 22,113,920 22,725,791 21,190,995 I . ~_ ��"{/-'I "

� ��v'- �� _..A DIRECTORS . " (; _. ("~

The accounting policies and notes on pages #"�to 65 form an integral part of these financial statements.

UKEH ANGELA N. PG/MBA/08/53348 MAIN WORK JROJECT.… · a case study of oando plc. by ukeh angela...

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