AN EVALUATION OF MERGERS AND ACQUISITIONS OF THE INSURANCE COMPANY IN THE NIGERIAN ECONOMY
CHAPTER ONE
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 to form a larger business organization. On the order hand, an acquisition involves the purchase of a 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 “an 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 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 since 1980 when such business activity was most prevalent.
In today’s business world, the approach of business organizations 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 to achieve risk reduction, improve access to the financial markets through increased size, or obtain tax carry-forward benefits.
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INSURANCE COMPANY
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. Mergers and Acquisitions activities allow the acquiring firm to enjoy a potentially desirable portfolio effect by achieving risk reduction while maintaining the firm’s 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 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 themselves. This is likely to be the case if the acquired firm has a strong cash position or low-debt equity ratio that can be used to expand borrowing by the merging or acquiring company.
The final financial motive is the tax loss carryforward that might be available in a merger and acquisition exercise if one of the firms has previously sustained a tax 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.
AN EVALUATION OF MERGERS AND ACQUISITIONS OF THE INSURANCE COMPANY IN THE NIGERIAN ECONOMY
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