The Role and Effect of Merger and Acquisation in Bank Recapitalization in Nigeria

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Merger can be defined as the combining of companies; the joining together of two or more companies or organisations and An Acquisition can be defined as the act of acquiring something According to the Encarta Dictionaries. According to, Recapitalization is restructuring a company’s debt and equity mixture, most often with the aim of making a company’s capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company’s capital structure and replacing them with bonds. Recapitalization in Nigeria banking sector, has built a solid foundation for Nigerian banks to compete favourably with their counterpart world over. Recapitalization causes unemployment due to downsizing, merger and acquisition, it causes deflation as more money is raked from peoples hand (through sales of shares) In order to build the new capital base. It also leads to current crisis of the banking sector (I.e. the unethical lending’s without collateral as the banks has so much money to give to nobody as the recapitalization is aimed at attracting foreign investors that cries of the country’s weak financial/capital market.



Abstract We study the stock market valuation of mergers and acquisitions in the European banking industry. Based on a sample of very large deals observed from 1988 to 1997 we document that, on average, at the announcement time the size-adjusted combined performance of both the bidder and the target is statistically significant and economically relevant. Although our sample shows a great deal of cross-sectional variation, the general results are mainly driven by the significant positive abnormal returns associated with the announcement of domestic bank to bank deals and by product diversification of banks into insurance. On the contrary, we found that M&A with securities and conclude with foreign institutions did not gain a positive market’s expectation. Our results are remarkably different from those reported for US bank mergers. We explain our different as stemming from the different structure and regulation of EU banking markets, which are shown to be more similar between them than as compared with the US one.

Abstract purpose-Recapitalization, mergers and acquisitions are the most crucial issues confronting the banking industry in recent times. Yet information relating to these issues is rarely reported in print. The purpose of this paper is to present the results of a survey aimed at understanding the challenges faced within the banking industry and the reactions of the banking underwriters towards the recapitalization exercise.

Following the announcement by the central bank of Nigeria on July 6, 2004 about a major reform program that would transform the banking landscape of the country, an unprecedented process of merger and acquisition has taken place in the Nigerian Banking Sector shrinking the number of banks from 89 banks to 25 banks or banking groups involving 76 banks which altogether account for 93.5% of the deposit share of the market. Thirteen (13) out of the 89 banks, accounting for only 6.5% of the deposit share of the industry were not able to make it (CBN, 2006).

Mergers and acquisitions represent the ultimate in change for a business and it is expected to add value to the business. No other event is more difficult, challenging, or chaotic as a merger and acquisition. It is imperative that everyone involved in the process has a clear understanding of how the process works. However, merger and acquisitions do not add value in all cases (Ajayi, 2005). There are cases where the synergies projected for merger and acquisition deals are not achieved. Problems and cultural issues are often cited as the top factors in failed integrations.

While merger and acquisition activities...
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