An Evaluation Of Merger And Acquisition On The Insurance Company On The Nigerian Economy

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An Evaluation Of Merger And Acquisition On The Insurance Company On The Nigerian Economy

Chapter One

1.0 Background To The Study

A business combination may take the form of either a merger or an acquisition. A merger is defined as the situation where two or more companies combine together to form a larger business organisation.On the order hand, an acquisition involves the purchase of controlling share in another company. Klime Poposki defined acquisition as a combination of two or more companies in which the resulting firm maintains the identity of the acquiring company.

A merger is defined in section 590 of CAMA, 1990 as “any amalgamation of the undertaking or any part of the undertaking of one or more bodies”.Akanikor, in his paper “mergers and acquisitions” defined acquisition as including “all business and corporate organizational and operational devices and arrangement by which the ownership and management of an independently operated properties and business are brought under the control of a single management”.

Mergers and Acquisitions have been the form of attention in the decades of the 1980 when such business activity was most prevalent.In today’s business world, the approach of business organization considering mergers and acquisitions will be more strategic and reasons procedure with special consideration of the ethical consequences on many parties that will be affected. Corporations may seek external growth through mergers and acquisitions in order to achieve risk reduction, improve access to the financial markets through increased size, or obtain tax carry-forward benefits.

Insurance Company

A mergers and Acquisitions may also expand the marketing and management capabilities of the firm and allow for new-product development. The motives for mergers and acquisitions are both financial and non-financial in nature. Mergers and Acquisitions activities allow the acquiring firm to enjoy a potentially desirable portfolio effect by achieving risk reduction while maintaining the firms’ rate of reform. Risk-averse investors may then discount the future performance of the resulting firms at a lower rate and thus assign a high valuation than what was assigned to the separate firms.

The second financial motive is the improved financing posture that a mergers and acquisitions can create as a result of expansion in size.Larger firms may enjoy access to financial markets and thus be in a better position to raise debt and equity capital. Greater financing capability may also be inherent in Mergers and Acquisitions itself.This is likely to be the case if the acquired firm has a strong cash position or low-debt equity ratio can be used to expand borrowing by the merging or acquiring company.

The final financial motive is the tax loss-carry forward that might be available in a merger and acquisition exercise if one of the firms have previously sustained at ax-loss.The Non-financial motives for mergers and acquisitions include the desire to expand management and marketing capabilities as well as the acquisition and development of new products.

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