THE IMPACT OF STRATEGIC MANAGEMENT ON MERGERS AND ACQUISITIONS IN A DEVELOPING ECONOMY: A CASE STUDY OF NESTLE AND LEVER BROTHERS PLC
TABLE OF CONTENT
Table of Contents
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Research Question
1.4 Objectives of the Study
1.5 Hypothesis of the Study
1.6 The Limitation of the Study
1.7 Scope of the Study
1.8 Significance of the Study
1.9 Definition of Terms
CHAPTER TWO; LITERATURE REVIEW
2.1 Definition of Strategy
2.1.1 Strategy Formulation and Implementation
2.2 The Strategy of Hierarchy
2.3 Historical Development of Strategy Management
2.4 The Concept of Strategic Management
2.5 Definition of Strategic Management
2.6 Strategic Management Process
2.7 Growth Strategies; Merger and Acquisition
2.8 Mergers and Acquisition: Size – Performance Relationship
2.9 Criticism of Strategic Management
2.10 Selection Conglomerate Cases of Mergers and Acquisition in a Developed Economy JP M organ partners
2.11 History of Nigerian Mergers and Acquisition Market and Profile of Nestle and Lever Brothers Plc
CHAPTER THREE; RESEARCH METHODOLOGY
3.2 Sources of Data
3.3 Primary Sources of Data
3.4 Method of Investigation
3.5 Administration of Questionnaire
3.6 Validation of Research Instrument
3.7 Reliability of the Instrument
3.8 Statistical Method Used for Data Analysis
CHAPTER FOUR; RESULT AND DISCUSSION; 4.1 Introduction
4.2 Analysis of Data
4.3 Test of Hypothesis
CHAPTER FIVE; SUMMARY, CONCLUSION AND RECOMMENDATION
This research work examined the impact of strategic management as a tool of achieving an effective and efficient merger and acquisition. The companies are established by their owners as an investment centre to generate return on their investment through their growth strategies. i.e. a combination of two companies into one larger company, which aims at minimizing cost, and at the same time maximizing profit and wealth of the shareholders of the company.
Regrettably, not only have most of these companies failed to achieve these laudable objectives, but also some of them had disappeared from business of economic environment after their merges and acquisitions.
Several reasons have been adduced for the abysmal performance of some of these companies. Prominent among these had been the inability by those at the helm of affairs i.e. management to recognize the impact/role of strategic management and apply same to the operations of their companies.
To carry out this research, both primary and secondary data were extensively collected, secondary data were extensively used. Copies of questionnaires were administered to the respondents of Nestle and Liver Brothers Plc under study. Data collected were analyzed by the use of tables, simple percentages amid chi-square. Findings were made in the course of the study, prominent among them included. That, strategic management played a very important role in the success, growth and survival of the companies, particularly where mergers are concerned.
1.1 Background Of The Study
In this contemporary economy, it has been noted that the business of most organization is not dependent only on the financial resources available, or the numerical strength of the work force but as a result of the managerial ability, competence and management style adopted in such organization.
This explains why in present times stories are abound of failures, abysmal performance and on some occasion total collapse or winding-up of several business organization. So many reasons have accounted for this, one is globalization and technology and another is Mergers and Acquisitions (M & A).
The paradox is that globalization, technology and M .~ A advances, open Up new opportunities even as they threaten the status quo. ‘1 he history of mergers contains enough tragedy to terrify the most resilient organization. The diversification wave around the world in 1960’s and 1970’s famously ended in tears and break-ups. Yet despite claims that lesson had been learnt, the 1990’s merger wave was as damaging as any before it. Shareholders in acquiring firms typically gain less from mergers than shareholders in acquiring firms. But according to a study, Rene Stulz (2001) of Ohio State University and two fellow economist found out that acquiring shareholders lost $216 billion- over 50 times what they lost in real terms in 1 980’s, although they spent only six times as much. Strikingly, these losses were concentrated in just 87 deals iii 1 998-2001. In total, mergers during that period actually destroyed some $134 billion of shareholders wealth. Many of the most disastrous mergers have been the result of chief executives excessive ambition. The chairman Daimler (1999), Jorgen Shrimp’s acquired of Chrysler, or Time Warner Gerry Levis Merger deal with America- onLine (AOL).
In the past few years there has been so much hostility on Merger & Acquisition from investors and outside directors that the typical boss would propose anything other that doing a Merger. Today profit ;~ souring, balance sheets strengthened amid corporate governance reforms implemented. Investors amid outside directors are increasingly asking the boss not what lie is doing to get the firm back on track but how lie plans to expand it.
In this environment, Merger proposals are once again, enthusiastically received. These changes are throwing companies into state of confusion, regarding strategy on whether bosses would curb their imperial ambitions enough to proposed only deals that truly make business sense, whether boards and investors have mastered the courage to question a boss’s merger plans thoroughly or equally not to put him under such pressure that lie proposes a merger out of desperation and whether working together, shareholders or chief executive are better abbe to spot the difference between a faddish merger and a useful one. Also to protect profits, companies have primarily responded by cutting their cost, re-engineering their processes, and downsizing their work forces. Yet, even companies that succeed in cutting their costs may fail to increase their revenues if they lack strategic vision and strategic know-how.
In most viable organizations, there is always the record of efficiency, effectiveness, higher productivity and profit maximization. While it is otherwise in some of the operations of their contemporaries. One of the reasons behind the successful performance of business organization is the application of the principles of strategic
management in the operations of their organizations by top level managers, in today’s environment of Mergers amid acquisitions.
As noted by Wheelen (1989) “many managers of today’s business organization failed because the managers refused to manage them strategically.
They made decisions based on long standing rules! policies or standard operating procedures. They failed to realize that they must look into the future as they plan their organization wide objectives, initiate strategies or set policies. They failed to realize that they rose above their training and experience in such functional/operational areas as accounting, marketing production or finance and grasped the overall future of the organization.”
One would be tempted to ask at this juncture, what exactly strategic I management is or why strategic management is relevant for (lie success of any business organization?
According to Thompson (1987). “Strategic Management is the process whereby managers establish organizations objectives; develop strategies to achieve these objectives in the light of all the relevant internal amid external environmental circumstances”. So far the recent merger activity has mostly been characterized by the sort of strategic management that experience suggests are likely ~ create shareholders value.
Also in his opinion, Wheelen (1989) defines “strategic management as (lie set of managerial decisions and actions that determines the long run performance of an organization. It includes strategic formulation, strategic implementation, and evaluation and control”. He adds that most managers who studied strategic management
emphasised the monitoring and evaluation of environmental opportunities and constraints in the light of the organization’s strengths. and weaknesses. Ifezue (1999) sees strategic management as the development of long run master-plans amid the strategies for the implementation and survival and growth of the business organization.
Consequently, the successful operation of any business organization such as a conglomerate cannot be achieved without recourse to the Concept of strategic management.
This is because, it is the pivot on which their success or failure revolves. Ifezue further explains that many of today’s business managers made profits because they came up with the right products at the right time and strategic thinking amid planning. Many past formal strategic thinking amid planning and wise management decisions carried these organizations where they stand in today’s business environment. More amid more corporate organizations are turning to formal planning system to guide their course of actions.
This research, aims specifically at analyzing the impact of strategic management on mergers and acquisition, and the alternative mode of growth on the size effect resulting from the achieved growth. In other words, the research seeks to determine whether mergers and acquisition on the one hand, and strategic management direction and policies /strategies on the other are related. In the second section of this study, we started by reviewing the relevant literatures on strategy and management relationship formulation and implementation, hierarchy, its historical development and prospects. We then link this to existing research/literature on mergers and acquisition (expansion and growth) on performance In the following section, the hypotheses would be tested
and results confirming our hypotheses would be shown. Finally summary, conclusions and recommendation for the study will be drawn and suggestion avenues for further research made.
1.2 Statement Of The Problem
Effective amid efficient corporate decision making demands a thorough and intelligent understanding of the various dimensions that impinge on corporate performance and success. The various dimension concern question on how, what, where, when, who whom and why of those cognate issues which if successfully managed, help in organization success, growth) merger and acquisition and development.
In addition to the relevant questions being asked decision have to be made in organization at units amid functions, since efficiency altimetry determine corporate success, growth amid development. Also important are those variables which are not under the control of organizational efficiency and effectiveness. Therefore, there is the need for conglomerate companies to have adequate understanding of these relevaiit functions and variables the methods for their integration, and how they can be determined, applied amid monitored for organizational survival, growth and development.
The main problem of this study is to access the roles of strategic management as tool in achieving organizational objectives in conglomerate companies and the impact it has on merger amid acquisitions,. Companies are floated to generate returns to her shareholders (the growing use of shares, rather than cash, as payment in acquisitions) regrettably, not only have most of these companies failed to achieved there laudable
objective, amid a good number of them have not only found it difficult to maintain their status quo but gone to the extent of foreclosure.
The emergence of strict adherence to the concept strategic management is making it much easier for firms to sell their non core businesses amid for corporate buyers to offload quickly unwanted parts of their businesses. Increasingly, strategic managers are continuously working for their firms to course up a target before a deal is done, which increases the likelihood of success. (The Economist: 2005).
However unsuccessful firms managers failed to appreciate the importance of chanting a clear organizational course and being good managers. They backed the instinct for strategic management thinking amid had ignored lesson implicit in the saving that “when one had no idea of where one is going, then one cannot realize that any road can lead there (Pearce 1991).
The discrepancies in the operational ability of these firms help to identify the major problem that strategic management is indispensable tool for the successful Duration of such companies and it is in appreciation of roles/benefits inherent in strategic management in conglomerates (with relation to mergers and acquisitions informed the study on the subject matter).
1.3 Research Questions
The following research questions will be used to determine the state of strategic management and its applicability, roles, potentials, benefits, problems and constraints encountered in its implementation, the overall effects and impact when applied to compare its overall impact on mergers and acquisitions amid performance conglomerates.
- To what extent are the firms aware of the concept of the strategic management in decision-making and the prospects and benefits?
- What is (lie impact of strategic management in achieving organizational objectives?
- To what extent is strategic management relevant for the successful performance of companies in Nigeria?
- How does the applicability of strategic management survival of companies as a going concern?
- To what extent does a firm performance relate to its size positively
- How does Nigerian environment make strategic management unnecessary for the Nigerian firm irrespective of organization conservation?
- What problem do firms encounter in the course of implementing strategic decisions?
1.4 Objective Of The Study
- To examine the relevance of strategic management in the successful performance of firms in Nigeria.
- To determine the impact of strategic management in achieving organization objectives, such as mergers and acquisition amid performance.
- To ascertain the benefits deriving from strategic management.
- To establish that mergers amid acquisitions as a current mode of growth and expansion.
- 5. To establish the problems, which confront managers in the application of strategic management, amid to suggest recommendations on how these problems could be tackled?
1.5 Hypothesis Of The Study
Though the research will focus on mergers and acquisition that result in increasing the size of the firm in its industry i.e. horizontal mergers amid acquisition. Similarly the study will examine the fundamental concept of strategic manage emit amid its impact on corporate objective of mergers and acquisitions. The empirical setting for the study, selected conglomerates (Nestle Nigerian and Lever brothers Plc.) were chosen because of the unambiguous size impact of most mergers and acquisitions or alliances between incumbent firms.
Based on previous literatures reviews, we formulated the following hypothesis for our study.
Hi: Businesses which do develop a formal strategic management system will be more effective in achieving their objectives than those that do not.
Ho: Businesses which do not develop a formal strategic management system will be more effective in achieving their objectives than those that do.
Hi: Mergers fail to come to be amid fail after consummation more frequently for human reason than for financial and managerial concepts and strategies.
Ho: Mergers fail to come to be and fail after consummation more frequently for financial and managerial concepts amid strategies than for human reason.
1.6 Limitation Of The Study
A review of related literature like books journals, official reports etc do not only help our understanding of the research problems. and formulation of the hypotheses and it is also a vital source of data. However, in the course of this research, a number of constraints were encountered.
First, the depth of qualitative data to sift through for meaningful information ~testing reliability valid validity of the data and unwillingness of persons concerned to release data.
Second, the paucity of indigenous literature as regards mergers and conclusions under the Nigerian environment poses a problem to this research.
Finally and very importantly, a major limiting factor lies in the apathy of Nigerian firms to release necessary information relevant to their strategic management decision plan. The prevalent suspicion which surrounds the researcher that lie may be acting on behalf of their competitors complicates these finding, amid no doubt question the accuracy of data obtained. Nevertheless, it must be noted that this problem or issue of accuracy of research findings is a common problem.
Notwithstanding, all these limitations and difficulties, it has been possible to carryout a reasonable pleasing amid interesting research amid that the findings of the research shall still remain valid.
1.7 Scope Of The Study
The scope of this study covers the concept of strategic management, definitions, process, applications, history and criticisms. The focus will be on mergers and acquisition as a growth strategy in strategic management, with particular emphasis on Its size performance relationship.
1.8 Significance Of The Study
As previously mentioned, the forces of globalization and technological advancement have weighty effects on the trends of modern business. Hence companies willing to be of much impact must take tremendous steps in dealing with issues as they arise and are foreseeable. A research of this nature could be significant for a number or reasons:
- It will create and reinforce the need awareness of strategic management as a management concept that companies should embrace in order to improve the quality of decision-making.
- It will help companies identify strategic management as an important mergers amid acquisition and improved performance.
- It will highlight the roles of strategic management in Nigerian companies.
- It will help companies look into future amid reduce if possible eliminate future uncertainty associated with the Nigerian business environment.
- It will help companies set up functional standards that will help in bridging the performance gap in their awareness for the improvement amid competition for the firm’s superiority.
- it will highlight the prospects of strategic management
- It will show how strategic management decision impact on mergers an acquisition and whether mergers amid acquisitions impact on performance.
- It will discuss strategic management process in the Nigerian environment.
- It will contribute to body of knowledge amid leave room for future research work.
1.9 DEFINITION OF RELEVANT TERMS
- Management: The Direction of human behaviour towards a particular goal or objective, or the control and coordination of all activities within a business so as to work towards a particular goal or objective. (Kate & Gubellini 1983)
- Strategic Management: Is the development and maintenance of viable relationship between the organisation and environment through the development of corporate purpose, objective and goals, growth strategies and business portfolio plans for organization’s wide operations (Ifezue 1999).
- Corporation: A form of business in which ownership is vested on shares of stock and an owner’s liability is limited to his investment. Corporations of formed under state laws (Kate & Gubellini 1983).
- Conglomerate: A Corporate merger of heterogeneous businesses which retails autonomous operating control in its various division and is financially controlled at the top executive level (Kate Gubellini 1983)
- Merger: The combining of two or more organizations into one. (Kate & Gubellini 1983)
- Strategy: The determination of the basic long term goals and objectives of an enterprise, amid the adoption of causes of action and the allocation of resources necessary for carrying out these goals. (Kate & Gubellini 1983)
- Growth Strategies: “A growth strategy is one that a firm pursues when it increases the level of its objectives higher than an extrapolation of the past
level into the future(Glueck 1980).
8.) Competition: A market condition where there are very large members of producers of a good who serve very large numbers of consumers. No producer or consumer controls price here. (Kate & Gubellini 1983)
- Benchmarking: A mark made on something such as a post used as a point for measuring things.