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AN INVESTIGATION INTO THE EFFECTS OF MERGERS AND
ACQUISITIONS ON FINANCIAL PERFORMANCE OF COMPANIES IN
KENYA (2003 - 2007)
BY
KENNEDY MURITHIBUS-3-2371-3/07
A THESIS SUBMITTED IN PARTIAL FULFILLMENT FOR THE
REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS
ADMINISTRATION (MBA –FINANCE) KENYA METHODIST UNIVERSITY
MAY 2010
DECLARATION
I declare that this is my original work and has not been submitted for examination in any
other University.
Signature: ________________________Date: _________________________
KENNEDY MURITHIBUS-3-2371-3/07
This thesis has been submitted for examination with our approval as the University
supervisors.
Signature: ______________________Date: ___________________DR. T. M. NYAMACHE
LECTURER, FINANCE
KENYA METHODIST UNIVERSITY
Signature: _________________________Date: _________________________
DR. FRANCIS MAMBO
LECTURER, FINANCE
KENYA METHODIST UNIVERSITY
ii
ACKNOWLEDGEMENT
I would like to take this opportunity to express my sincere appreciation and gratitude to
the following people and organizations without whose assistance, guidance and valuable
support, this study would not have been successful.
Dr. Nyamache and Dr Mambo, supervisors, for directing and giving in-depth input for a
comprehensive proposal.
All the staff and management of Kenya Methodist University, Nairobi Campus, who
assisted and contributed to the success of this proposal.
To my colleagues in the MBA class for their support and team work that gave me
a lot of support morally.
Finally, to Kenya Methodist University for having given me this opportunity to be part of
this comprehensive Masters Degree Programme.
iii
DEDICATION
To my wife Lydia and children Celine and Cynthia for their unwavering love, support,
encouragement and dedication during the challenging and trying study.
iv
ABSTRACT
The general objective of this study was to establish the effects of mergers and
acquisitions on financial performance of companies in Kenya. The study also explored
the impact of corporate restructuring to firms in Kenya.
The specific objectives were:
To determine the significance of mergers and acquisitions in the increase of market share
of companies in Kenya, to find the role the mergers and acquisitions play in achieving
and enhancing profitability in companies, to establish the extent to which mergers and
acquisitions assist in the attainment of returns on investments, and to determine the
benefits of synergy that is achieved once companies adopt mergers and acquisitions in
Kenya.
Literature was reviewed on effects mergers and acquisitions .This review also monitored
the trend of amalgamations of companies in Kenya. The focus was between the fiscal
years 2003 to 2007. In the same section, the nature of mergers and acquisitions, types of
mergers and the importance of mergers on company performance were reviewed.
The research design was descriptive. The design was appropriate to the study as it sought
to obtain complete and effective corporate restructuring in Kenyan firms.
From the findings, the study found that that mergers and acquisitions increase the market
share of companies the firms entered into new geographical areas, diversify business
growth, acquire states of art and technology, comply with new legislation, acquire brand
loyalty and overcome entry barriers. Mergers and acquisitions also assisted in the
v
attainment of returns on investment in companies, the study also concludes that the
benefits of synergy that is achieved through adoption of merger and acquisition were;
increased market share, acquiring state of technology, complying with new regulation ,
acquire brand loyalty and overcome entry barriers. The study also established that there
exist positive relationships between merger and acquisition and predictor factors which
are market share, profitability of the company, diversification of risk, achievement of
synergy and return on investment.
vi
LIST OF ABBREVIATIONS
M&A: Mergers and Acquisitions
FTC : Federal Trade Commission
NAVPS: Net Asset Value Per Share
NAV: Net Asset Value
EPS: Earnings Per Share
ROIC : Return On Investment Capital
NSE: Nairobi Stock Exchange
ABSA: Amalgamation of Banks in South Africa
MPC: Monopolies and Price Control
vii
LIST OF OPERATIONAL TERMS
Horizontal mergers:
It takes place between firms that are actually or potentially competitors occupying similar
positions in the chain of production.
Vertical mergers:
It takes place between firms at different levels of production.
Conglomerate mergers:
This is a merger between firms that are neither competitors nor potential or actual
customers or suppliers of each other.
Agency problems:
Agency problems arise when managers own a fraction of the ownership of their firm.
Market capitalization:
The total market value of a company at the bourse.
viii
TABLE OF CONTENT
DECLARATION.................................................................................................................ii
ACKNOWLEDGEMENT..................................................................................................iii
DEDICATION....................................................................................................................iv
ABSTRACT........................................................................................................................v
LIST OF ABBREVIATIONS...........................................................................................vii
LIST OF OPERATIONAL TERMS................................................................................viii
LIST OF TABLES............................................................................................................xii
LIST OF FIGURES..........................................................................................................xiii
CHAPTER ONE..................................................................................................................1
1.0 INTRODUCTION....................................................................................................1
1.1 Background of the Study.......................................................................................1
1.2 Statement of the Problem......................................................................................6
1.3 Research Questions..................................................................................................9
1.4 Objectives of the Study.......................................................................................10
1.4.1General objective...............................................................................................10
1.4.2 Specific objectives............................................................................................10
1.5 Significance of the Study....................................................................................10
1.6 Scope of the Study..............................................................................................11
1.7 Limitations of the Study......................................................................................11
CHAPTER TWO...............................................................................................................13
2.0 LITERATURE REVIEW.......................................................................................13
2.1 Nature of Corporate Restructuring..........................................................................13
2.2 Types of Mergers and Acquisitions/Corporate Restructuring.................................14
2.2.1 Horizontal mergers...........................................................................................17
2.2.2 Vertical merges.................................................................................................18
2.2.3 Conglomerate mergers......................................................................................19
2.3 Motives behind Mergers..........................................................................................19
2.4 Importance of Mergers in Company Performance..................................................22
2.4.1 Merger analysis..............................................................................................24
2.4.2 Empirical studies of mergers............................................................................26
ix
2.4.3 Information in merger review.........................................................................27
2.4.4 Merger remedies............................................................................................28
2.5 Performance Measures.............................................................................................29
2.5.1 Other measures of performance......................................................................31
2.6 Market Based Valuation........................................................................................33
2.7 Conceptual Framework.......................................................................................36
CHAPTER THREE...........................................................................................................37
3.0 RESEARCH METHODOLOGY...........................................................................37
3.1 Research Design......................................................................................................37
3.2 Target Population................................................................................................38
3.3 Data Collection Methods and Instruments..........................................................38
3.4 Research Area..........................................................................................................40
3.5 Sample Design and Size..........................................................................................40
3.6 Data Analysis, Interpretation and Presentation...................................................41
CHAPTER FOUR:............................................................................................................42
4.0 DATA ANALYSIS AND INTERPRETATION.........................................................42
4.1 Introduction..............................................................................................................42
4.2 Analysis and Interpretation......................................................................................42
4.2.1 Personal Data....................................................................................................42
4.2.2 Firm’s Profile....................................................................................................45
4.2.3 Experience of the Firm.....................................................................................48
4.2.4 Regression Analysis..........................................................................................52
CHAPTER FIVE:..............................................................................................................56
5.0 DISCUSSION CONCLUSION AND RECOMMENDATION..................................56
5.1 Introduction..............................................................................................................56
5.2 Discussion................................................................................................................56
5.3Conclusion................................................................................................................60
5.4Recommendation......................................................................................................60
REFERENCES..................................................................................................................61
APPENDICES...................................................................................................................65
Appendix I: Introduction Letter.....................................................................................65
x
Appendix II : Questionnaire..........................................................................................66
Appendix III: Time Plan................................................................................................72
Appendix IV: Budget Estimate......................................................................................73
APPENDIX V: MERGER CONTROL NOTIFICATIONS- SOURCE MPC ANNUAL
REPORTS 2001 - 2004.................................................................................................74
xi
LIST OF TABLES
Table 4.1: Education level.................................................................................................44
Table 4.2: Type of company...............................................................................................45
Table 4.3: Legal structure of the firm................................................................................46
Table 4.4: Classification of organization in terms of ownership.......................................47
Table 4.5: Sector of the organization.................................................................................47
Table 4.6: The Sort of Merger or Acquisition That the Company Undertook..................48
Table 4.7: Reason/S Why the Organization Undertook the Merger..................................49
Table 8: Whether the Firm Was Subjected To Appeal to the Tribunal.............................50
Table 4.9: Whether the Firm Appealed To the High Court...............................................50
Table 4.10: The Degree of Involvement of Managers in the Acquisition or Merger
Process...............................................................................................................................51
Table 4.11: Whether The Merger or Acquisition Undertaken the Firm Is A Success.......52
Table 4.12: Whether the Respondents Would Recommend a Merger or an Acquisition
Again..................................................................................................................................52
Table 4.13: Model Summary.............................................................................................53
Table 4.14: Coefficients results.........................................................................................54
xii
LIST OF FIGURES
Figure 2.1:-The Conceptual Framework............................................................................36
Figure 4.1: Gender of the respondents...............................................................................43
Figure 4.2: Number of years of service.............................................................................43
Figure 4.3: Ownership composition of company.................................................................44
xiii
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the Study
The existing capabilities of a firm influence the kind of acquisition activity that will make
business and economic sense. The central strategy for most firms seeking Mergers and
Acquisitions (M &A) is to seek to become the leading player in the product-market area
of the strategic business unit.
The changing environments and the new forms of competition have created new
opportunities and threats for business firms. The change imperatives are strong, and firms
must adjust to new forces of competition from all directions. This has forced many of
them to adopt many forms of restructuring activity. Twenty years back, few companies
made mergers a key element of their growth strategy. Mergers were an afterthought or
episodic.
Today, many companies look to achieve over 50 percent of their growth from M&As.
Thomas and Weston(1992).
There is no question that the pent-up demand for mergers has been brought back to life
due to various factors such as convergence of low interest rates, debt availability, private
equity and venture capital, cash infusions from initial public offers and the perceived lack
of organic growth opportunities due to a saturated marketplace. For large samples, some
M&As succeed, others fail.
1
But well conceived and effectively implemented M&A activity can yield returns to
shareholders in excess of broad stock market indexes .The Economist (2000).
Some acquirers have developed processes that facilitate the achievement of highly
impressive track records. For example, Anslinger and Copeland (1996) found out that
samples of both corporate and financial buyers were able to achieve superior
performance.
The returns to acquiring firms are influenced by a number of factors. Many firms engage
in a series of M&A activities over time thus making it difficult lo isolate the influence of
a single acquisition event. If the time period over which the returns to the shareholders of
acquiring firms includes a year or two before a specific acquisition, on average acquiring
firms earn at least the same as their cost of capital. But studies also reveal that for the
largest combinations during the period of strategic mergers (1992-98), in at least two-
thirds of the cases, value is increased.
Other recent contributions suggest that long-term positive results for mergers are found
for mergers across related product lines. Kraillinger (1997). It is important to note the
long-term effects on performance of merger deals. As mentioned by Chakrabarli and
Burton (1983), performance related incentives for mergers affect long term strategic
variables which tend to be underestimated in much of the current empirical research,
which usually focuses on the short-term, economic effects.
2
In these long-term effects, the expected synergistic characteristics of mergers can
contribute to improved performance through successful efficiency of operations, whereby
economies of scale spread the large fixed costs of investing in machinery or computer
systems over a larger number of units. Another efficiency gain is achieved by combining
complementary activities.
An example is combining a company strong in research with one strong in
marbling. .Cosh,Hughes,Lee and Singh(1989).
This effect of merging companies is a well-known classic issue, where increased size of
companies and synergies, through internal growth or by means of mergers, are positively
related to long-term performance. Schumpeter (1942).
The probability of deals success goes up considerably when the key elements of post-
merger integration are not only started before closing, but when the likely risks and
challenges of the integration are considered al the very beginning of the merger process,
when the acquirer is deciding what to buy and what to pay. All of the elements that affect
Post merger integration success, especially the culture of the companies, must be assessed
and rolled into the synergy (and price to pay) calculation.
Pre-merger planning has become especially critical as companies face pressure to deliver
synergies as soon as possible. In essence, there should not be separate mergers and post-
merger integration process, but a holistic approach to the deal, from strategy to target
identification and valuation to integration.
3
This involves looking downstream al core processes and the nuts and bolts of how things
work and in getting the people who know how to design and implement changes to these
systems and processes involved up front, especially during the valuation stage. Berger
(1999).
With excess capacity in an industry, horizontal mergers can be used to shut down some
high-cost plants to reduce industry supply and to increase efficiency in the remaining
firms. Further, a number of industries formerly fragmented into many small-scale
operations have been rolled up into larger firms. This form of merger is what is referred
to as consolidation and a good example in Kenya is what the Coca Cola Company is
carrying out by closing bottling facilities countrywide while expanding the company's
bottling facilities in the city. The larger firm has been able to achieve efficiencies not
achieved by the separate units. Berger (1999).
Mergers have become popular because of the enhanced competition, breaking of trade
barriers, free flow of capital across countries and globalization of business as a number of
economies are being deregulated and integrated with other economies. Most mergers
actually benefit consumers by allowing firms to operate more efficiently. But some are
likely to lessen competition. That, in turn, can lead to higher prices, reduced availability
of goods or services, lower quality of products, and less innovation. Indeed, some
mergers create a concentrated market while others enable a single firm to raise resources.
Berger (1999).
4
Internal growth and mergers are not mutually exclusive activities. Indeed, they are
mutually supportive and reinforcing. Successful firms use many forms of M&A and
restructuring based on opportunities and limitations. The characteristics and competitive
structure of an industry will influence the strategy employed.
The factors favoring M&A in part relate to industry characteristics. Some other
advantages of M&A or external growth may also be noted. Thomas and Weston(1992).
An acquisition enables the acquirer to obtain an organization already in place with an
historical track record. Some surprises are still possible, but they can be mitigated to
some degree by appropriate due diligence. An acquisition generally involves paying a
premium, but the cost of acquiring a company may be determined in advance. An
acquisition may also represent obtaining a segment divested from another firm. The logic
is that the segment can be managed better when added to the activities of the buying firm.
Firms generally have internal development programs that are assisted by M&A activity.
Acquisitions and mergers have been popular methods of increasing the size and value of
firms in modern times. This approach, in contrast to the older system of increasing value
through organic growth, is faster and in many cases cheaper. It is important to observe
that one of the greatest challenges of corporate raiding has always been identifying the
business area in which a firm should participate in order to maximize its long-term
profitability .
It would be appropriate to adopt a definition of corporate strategy that helps in
understanding issues in mergers and acquisitions.
5
Mintzberg and Quinn (1991), define strategy as a pattern or a plan that integrates an
organization’s major goals, policies and actions.
Strategic decisions are based on building on or stretching an organization’s resources
and competencies to create new opportunities or capabilities based on these resources.
Strategy therefore, may in some cases require major resources which are beyond firm’s
existing capability. In such a situation, a merger or an acquisition may be the only
available option. It may, therefore, for instance, be an appropriate phenomenon for an
organization to merge with or acquire a supplier of its raw material so as to guarantee
availability and quality of such raw material or with a competitor so as to expand its
market share or with another firm in order to comply with changes in legislation. Many
managers will today regard buying a company for access to markets, products,
technology, resources or management talent as less risky and speedier than gaining the
same objectives through internal efforts or organic growth. Jemison and Sitkin(1986).
1.2 Statement of the Problem
Mergers and acquisitions have become the main means of attaining higher performance
which is the main goal of any company.
Failure to perform is critical to a business as it is the major cause of business failure.
Many studies have been done in the area of M&A and results found from the studies have
been inconsistent.
6
There are quite a number of activities that go on behind the scenes of these mergers and
acquisitions which need to be known, but are apparently not easily available. The
Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504) is the principal
guide that gives guideline and direct all processes of mergers and acquisitions in Kenya.
This Act has not been revised since 1989, yet the dynamic changes in the market place
demand that such a law should be reviewed from time to time, to support and promote
effective competition . It is a law that is not in harmony with other sectional laws, such as
the Banking Act or the Trade Licensing Act. The law does not give a period within which
ministerial approval should be given. Any delays could make firms loose out on a merger
opportunity. There are heavy and punitive penalties that are imposed by this law if any
merger or a takeover proceeds without such an approval.
It is universally recognized that target identifications, evaluation and screening takes up a
lot of managers' time, and forms their substantial costs relating to professional services.
Jemison and Silkin(1986). The least a company could expect is to undergo an unfriendly
approval process. This study will document in a comprehensive manner the experiences
of companies that have undergone mergers and acquisitions in Kenya. The documented
experiences would focus on factors that would include the approval processes and
creation of shareholder value. The study would also give an insight of processes, and
highlight barriers encountered from the perspective of those who have 'been there’.
The study will tend to establish whether mergers and acquisitions always result in
creation of shareholders' value.
7
In conducting this survey study among the Kenyan firms that have been involved in
mergers and acquisitions activity, an opportunity to observe similarities or otherwise on
these conclusions, will be established and documented.
Chesang (2002) ,carried out a study on Merger Restructuring and Financial Performance
of Commercial Banking in Kenya. Her study did not cover mergers and acquisitions in
other sectors of economy. Consequently, this study will include an insight in the field of
mergers and acquisitions as to the approval processes, creation of shareholders wealth
and firms perception as regards factors that contribute to the success or failure of mergers
and acquisitions among a broader range of Kenyan firms
A study was conducted by Lev and Mandelker (1972), on 69 firms. They compared the
performance of merged firms using profitability measures for 5 pre merger and 5 post
merger years. They concluded that the market value of the acquiring firms rose on
average by 5.6 % (significant at 10% level).
Lichtenberg, Frank, and Siegel (1990), examined United Kingdom active acquirers and
found some evidence that companies undertaking mergers earned a higher rate of returns
than those that relied on internal growth. They were however unable to identify a positive
relationship between the level of merger activity and profitability.
Few studies have been done in Kenya concerning M&A and by conducting this research,
the researcher will be able to know how companies perform.
8
Many companies in Kenya use share price as their measure of performance and by which
they are judged by investors and stockholders alike. This study will be set to find out the
effects of mergers and acquisitions, if any on the performance of the companies in Kenya.
The question for the study will therefore be: Would the performance of the firm be the
same before and after merging?
1.3 Research Questions
The research questions had been decided as follows:
i. What is the significance of mergers and acquisitions in the increase in market
power of companies in Kenya?
ii. What is the role that mergers and acquisitions play in achieving enhanced
profitability of companies in Kenya?
iii. To what extent have mergers and acquisitions assisted in the attainment of returns
on investment in companies in Kenya?
iv. What are the benefits of synergy that is achieved once companies adopt mergers
and acquisitions?
9
1.4 Objectives of the Study
1.4.1General objective
To establish the effects of mergers and acquisitions on financial performance of
companies
1.4.2 Specific objectives
The specific objectives have been decided as follows:
i. To determine the significance of mergers and acquisitions in the increase in
market share of companies in Kenya.
ii. To find out the role that mergers and acquisitions play in achieving enhanced
profitability of companies in Kenya.
iii. To establish the extent to which mergers and acquisitions assist in the attainment
of returns on investment in companies in Kenya.
iv. To determine the benefits of synergy that is achieved once companies adopt
mergers and acquisitions.
1.5 Significance of the Study
This study will be of value to:
Current investors and firms at the Nairobi Stock Exchange(NSE) and elsewhere and any
other firm in competitive industry as it will add knowledge on the understanding of the
importance of mergers and acquisitions in analyzing company performance.
Academicians and researchers by providing more insight into the relationship between
mergers and acquisitions and company performance.
10
As the environment is very dynamic, the practitioners of management need to update
themselves and their respective industries on the best practices required.
To the executives and managers of the companies listed at the NSE, the study will cover
all the companies which have merged and the relative performance.
This study will also contribute to the bulk of knowledge and research at the university as
it will be used as a basis of reference by students for any future study in the field of
mergers, acquisition and restructuring of companies.
1.6 Scope of the Study
The scope of this study covered all the companies in Kenya that have undergone mergers
and acquisitions between the year 2003 and 2007. Emphasis was, however, be on Nairobi
since it is the capital city and most of the head offices are located in Nairobi.
1.7 Limitations of the Study
The major constraints of this study were:
i. Time factor: Due to the fact that the time allocated for this study was short, the
researcher was compelled to take a case of only those companies that operate in
Nairobi. This however, yielded reliable and valid results.
ii. Financial constraints: This restricted the scope of this study because of lack of
sufficient funds. The researcher however, engaged the use of his personal savings
and went for cost effective data collection tools and methods to cut on costs.
11
iii. Lack of cooperation: The researcher encountered a lot of resistance while
carrying out this study due to the fact that the topic under study touched on the
sensitive issue of mergers and acquisitions. The researcher overcame this
limitation by accompanying each questionnaire with a cover letter informing the
respondents that the research study was purely for academic purposes and that the
responses given would be treated with utmost confidentiality between the
researcher and the respondent.
12
CHAPTER TWO
2.0 LITERATURE REVIEW
This chapter considers literature relevant to the subject under study. The main issues
under review were; the nature of mergers, types of mergers and acquisitions, motives of
mergers, importance of mergers in company performance, performance measures, market
based valuation and the conceptual framework.
2.1 Nature of Corporate Restructuring
Merger can be defined as any transaction that forms one economic unit from two or more
previous ones. Takeovers and related activities in the 1980s are much broader in scope
and raise more fundamental issues than previous merger movements. Thus the traditional
subject of M&A has been expanded to include takeovers and related issues of corporate
restructuring, corporate control and changes in the ownership structure of firms. Thomas
and Weston (1992).
Many mergers have little or no negative impact on competition. Some may be pro-
competitive, for example, by enhancing production efficiencies resulting from economies
of scale or scope. Mergers may also create new synergies, lead to innovation by
combining talents of different firms, and provide additional resources to develop new
products and services. Chakrabati and Burton (1983).
13
Concerns about mergers, acquisitions and other corporate combinations are generally
based on the same concerns about anti-competitive behavior. The main concern is that a
larger merged firm may increase its market power. Hoskisson and Hitt(1994).
To the extend a merged firm becomes more dominant in a market, there is a greater
potential to abuse the accumulation and exercise of market power to the detriment of
competitors and customers.
2.2 Types of Mergers and Acquisitions/Corporate Restructuring
Thomas and Weston (1992), found that business firms have used a wide range of
activities in seeking to exploit potential opportunities. The major objective of mergers,
tenders offers and joint ventures is to achieve expansion and growth. Merger is any
transaction that forms economic unit from two or more previous separate business units.
Tender offer is a method of making a takeover via a direct offer to target firms’
shareholders to buy their shares, while a joint venture is a combination of subsets of
assets contributed by two (or more) business entities for a specific business purpose and
for a limited duration. Each of the venture partners continues to exist as a separate firm,
and the joint venture represent a new business enterprises.
Sell-off is a general term for divestiture of part or all of a firm by any one of a number of
means e.g. sale, liquidation, spin-off, and so on. Spin-offs is a transaction in which a
company distributes on a pro rata basis all of the shares it owns in a subsidiary to its own
shareholders.
14
This creates a new public company with (initially) the same proportional equity
ownership as the parent company. Divestiture is the sale of a segment of a
company, ,assets, a product line or a subsidiary to a third party for cash and/or securities.
Equity carved is a transaction in which a parent firm offers some of a subsidiary common
stock to the general public to bring in a cash infusion to the parent no longer exists and
only the new offspring survive.
Under changes in ownership structures, we have exchange offer, it’s a truncation which
provides one class (or more) of securities with the right or option to exchange part or all
of the holdings for a different class of the firm’s securities, e.g. an exchange of common
stock for debt. It enable a change in capital structure with no change in investment share
purchases here a public corporation buys its own shares by tender offer, on the open
market, or in negotiated buybacks.
Going private is a transformation whereby a public corporation is converted into a
privately-held firm, often via a leveraged buyout or a management buy-out Leveraged
buyout is where the company is purchased by a small group of investors, financed largely
by debt. We also have leveraged cash-outs. a defensive reorganization of the firm ‘s
capital structure in which outside shareholders receive a large one-time cash dividend,
and inside shareholders receive new shares of stock instead, and lastly Employee Stock
Ownership Plans (ESOPs) – a defined contribution pension plan designed to invest
primarily in the stock of the employer firm.
15
Restructuring is the changes in product-market participation, asset redeployment,
financial engineering; changes in management systems to improve revenue growth and to
achieve efficiency increases including cost reductions.
Corporate control is another type of merger, under corporate control we have premium
buybacks it’s the repurchase of a substantial stockholder ownership interest at premium
above the market price (called green mail) standstill agreement – these represent
voluntary contracts in which the stockholder who is bough out agrees not to make further
investment in the company in the future.
Anti takeover amendments are changes in the corporate by laws to make acquisition of
the company more difficult or more expensive. These include: supermajority voting
provisions, requiring a percentage (e.g. 80%) of stockholders to approve a merger,
staggered terms of directors which can delay change of control for a number of years,
golden parachutes which award large termination payments to existing management if
control of the firm is changed and management terminated and poison pill provisions
which give present stockholders the right to buy at a substantial discount the shares of a
successor company formed by a stock takeover.
Proxy contest is a type of merger where an outside group seeks to obtain representation
on the firm’s board of directors. The outsiders are referred to as “dissidents” or
“insurgents” who seek to reduce the control position of the “incumbents” or existing
board of directors.
16
Since the management of a firm often has effective control of the board of directors,
proxy contents are often regarded as directed against the existing management.
It is clear from the above list that the strategies include expansion, contraction and efforts
to improve the efficiency of operations. Joint ventures represent a flexible method of
exploring new areas with partners whose capabilities are complementary. Joint venture
can be used to have the seller transmit knowledge about the operation and the buyer to
learn more about what is being acquired.
With regard to split-ups and spin-offs, a firm may improve motivations and performance
by creating separate operations, when an activity does not fall into an effective
organization structure of the parent. Especially promising in this connection are cross-
border transactions (like the Nation Media Group in the East African region) either in the
form of joint venture or mergers and acquisitions to achieve new products, new
technologies, and new geographic markets.
2.2.1 Horizontal mergers
This takes place between firms that are actually or potential competitors occupying
similar positions in the chain of production. Merger reviews typically focus on horizontal
mergers since; by defining they reduce the number of competitors and the relevant
markets. Also of concerns are mergers between a firm which is active in a particular
market and another which is a potential competitor.
17
In a horizontal merger, the acquisition of a competitor could increase market
concentration and increase the likelihood of collusion. The elimination of head-to-head
competition between two leading firms may result in unilateral anticompetitive effects.
An example is the acquisition of Amalgamated Banks of South Africa (ABSA), (a big
bank in South Africa) by Barclays Bank (another big bank), in many areas of South
Africa. The merger has reduced the number of competitors, often leaving Barclays Bank
as the only major bank in the area. Owino (2005).
2.2.2 Vertical merges
This takes place between firms at different levels in the chain of production (such as
between manufactures and retailers); vertical mergers can also be of concern. Vertical
mergers involve firms in a buyer-seller relationship- a manufacturer merging with a
supplier of component products, or a manufacture merging with a distributor of its
products. A vertical merger can harm competition by making it difficult for competitors
to gain access to an important component product or to an important channel of
distribution. This is called a “vertical foreclosure” or “bottleneck” problem.
Another example is the merger of Time Warner Inc, producers of HBO and other video
programming and Turn Corp., producers of CNN, TBS, and other programmes. The
USA Federal Trade Commission (FTC) was concerned that Time Warner could refuse to
sell popular video programmes to competitors of cable TV companies owned or affiliated
with Time Warner or Turner or offer to sell the programmes at discriminatory prices.
18
. That would allow Time Warner – Tuner affiliate cable companies to maintain
monopolies against competitors like Direct Broadcast Satellite (DBS) and new wireless
cable technologies. What’s more, the Time Warner-Turner affiliates could hurt
competition in the production of video programming by refusing to carry programmes
produced by competitors of both Time Warner and Turner. The FTC allowed the merger,
but prohibited discriminatory access terms at both levels to prevent anti-competitive
effects .Mantel and Eudema(2000).
2.2.3 Conglomerate mergers
According to Hamed (1999) Conglomerate Mergers between firms that are neither
competitors nor potential or actual customers or suppliers of each other which vary in
types and attributes and they may be pure or mixed in form whereby pure mergers have
no economic relationships between the acquiring firm and the acquired firm.
Mixed mergers have aspects of both pure conglomerate merger, and of horizontal merger.
This is a combination of firms engaged in unrelated lines of business activity, for
examples merging of different businesses like manufacturing of cement products,
fertilizers products, electronic products and advertising agencies.
2.3 Motives behind Mergers
One of the most common motives for merges is growth. There are two broad ways a firm
can grow. The first is through internal growth. This can be slow and ineffective if a firm
is seeking to take advantage of a window of opportunity in which it has a short-term
advantage over competitors.
19
The faster alternative is to merge and acquire the necessary resources to achieve
competitive goals. Growth is essential for sustaining the viability, dynamism and value-
enhancing capability of a company.
During the twentieth century, M&As have occurred in waves where times of low activity
frequently have turned into periods of high activity. What are the motives that have made
M&As such a widely used strategy?
Baker (1999) looks at the similarities within and across industries regarding merger
motives. His empirical material consists of primary and secondary data collected from
two merger in three industries respectively; manufacturing, banking and information
technology. Their analysis makes use of three different perspectives, the reason for this
being to create understanding and furthermore illuminate the complexity of the problem.
The results clearly demonstrate similarities in merger motives within the industries, but
also give some support for similarities across the industries. Using a multi perspective
approach they have come up with a number of motives which include:
Enhanced profitability: when two or more companies’ combine they result in rise in
profit because they realize cost reduction and efficient utilization of resources.
20
Synergy: another commonly cited motive for mergers is the pursuit of synergistic
benefits. This is the new financial math that shows that 2+2=5, that is, as the equation
shows a combination of two firms will yield a more valuable entity than the value of the
sum of the two firms if they were to stay independent: Value (A+B)> Value (A) + Value
(B)
Although many merger partners cite synergy as the motive for their transaction, energetic
gains are often hard to realize. There are two types of synergy: that which is drive from
cost economies and that which comes from revenue enhancement. Cost economies are
the easier of the two to achieve because they often involve eliminating duplicate cost
factors such as redundant personnel and overhead. When such synergies are realized, the
merged company generally has lower per-unit costs.
Diversification of risk: Other motives for mergers and acquisitions include
diversification, whereby companies seek to lower their risk and exposure to certain
volatile industry segments by adding other sectors to their corporate umbrella. However,
this is the exceptions rather than the norm.
Reduction in tax liability: Under the Kenyan tax law, a company is allowed to carry
forward its accumulated loss to set-off against its future earnings for calculating its tax
liability. A loss making company may not be in a position to earn sufficient profits in
future to take advantage of the carry forward provision. Thus by combining with a profit
making a company, the combined company can utilize the carry forward losses and save
tax.
21
Agency problems
An agency problem arises when managers own only a fraction of the ownership of their
firm. This partial ownership may cause managers to work less vigorously than otherwise
or to consume perquisites (luxurious officers, company car etc) because the majority
owners bear most of the cost. Manne (1965), emphasized that the market for corporate
control and viewed mergers as a threat of takeover if a firm’s management logged in
performance either because of inefficiency because of agency problem.
2.4 Importance of Mergers in Company Performance
Mergers & Acquisitions can be seen as instruments used by companies externally
acquire capabilities developed by their partners. As such they can have a positive
economic effect on companies that are active in the M&A Market.
However, overview of studies on the economic effects of M&A performed during the late
fifties and sixties reveals that there is substantial ex post evidence that mergers and
acquisitions have positive effects on the performance of firms. Hoskisson and Hilt
(1994), suggest that related acquisitions can have a positive effect on company
performance if these acquisitions support innovative activities of firms.
The Stock Market is one of the most closely observed economic phenomenon in the
world. Market indicators meet the demand for measures of stock market performance.
Such indicators quantify movements in stock market prices and act as a standard in
evaluating the returns on money invested in the stock market.
22
Stock market indices as aggregate measures are an instrument to meet the information
requirement of investors by characterizing the development of global markets and
specified market segments. A merger is believed to have a substantive effect on the stock
market. Synergies top the list of merger motives.
To better understand the importance of M&As in company performance, Patrick
(1994) ,surveyed the executives responsible for corporations' M&A strategy. Most of
those surveyed listed synergy as a leading motivation for both domestic and cross-border
mergers. Diversification was also identified as a good reason to engage in a merger. They
also cite operating economics as an important merger goal.
They cite mergers as being important in increasing a company's focus and eliminating
poorly performing units thus increasing managerial efficiency while creating a particular
organizational structure at the same time. Mergers assist companies to increase cash,
taking advantage of market conditions, seek tax advantages, restructure capital and
resolve antitrust concerns taking advantage of market conditions, seek tax advantages,
restructure capital and resolve antitrust concerns.
23
2.4.1 Merger analysis
Large mergers, acquisitions and some other corporate combinations require prior review
and approval in some jurisdictions. As part of their review, competition authorities may
prohibit mergers or approve them subject to conditions.
Mergers are usually only prohibited or subjected to conditions if the authority concludes
that the merger will substantially harm competition. The merger of a firm that provides
essential inputs to other firms can be problematic if the supply of those inputs to other
firms is threatened. For example, the merger of a dominant local provider with a major
Internet Service Provider (ISP) can raise concerns about whether other ISPs will obtain
local access services on fair and non-discriminatory terms. Such a merger might be
reviewed in order to ensure that adequate safeguards are in place to protect competing
ISPs. Sherman (1998.)
In the context of a merger review, market definition is often the key factor in
determining whether a merger is anti-competitive. If a market is defined broadly, the
merging firms may he considered to be competitors. A more narrow market definition
may result in a determination that the firms operate in different markets. On the other
hand, a broad market definition could lead to a conclusion that the merged entity will face
sufficient competition from other firms in the market. A narrow definition could lead to a
conclusion that the merged entity would have excessive market power in a smaller
market.Blair(1993).
24
The second stage of the analysis is the identification of firm competing in the relevant
market and their market shares. The determination of market share will have a direct
bearing on an assessment of market power and the potential for abuse of market power by
the merged entity.
The evaluation of market participants includes not only firms which actually participate
in the relevant market, but also firms which could be expanded to enter it.
In assessing the potential adverse effects of a proposed merger, attention will typically
focus on the establishment or increase of the dominant position by the merged entity.
There may also be concerns that the merger, by reducing the number of firms
participating in a market, will create conditions which make anti-competitive agreements
among them more likely. The evaluation of barriers to entry is an important aspect of
merger review. A finding that there are low barriers to entry can help justify a merger.
Finally, the analysis concludes with an assessment of any efficiency to be realized as a
result of the merger. In this stage, the objective is to assess efficiency or other welfare
gains which can be projected to result from the merger. These will be balanced against
any anti-competitive effects which have been identified in the earlier stages of the review.
Theoretically, substantial efficiency gains or other public welfare gains could support
approval of a merger even where anti-competitive risks are identified. In practice, it is
difficult for a competition authority to qualify the positive and negative aspects of the
transaction and arrive at any verifiable net effect, it may also prove difficult lo determine
25
how any efficiency or other welfare gains will be distributed between the producing firm
and its customers. Similarly difficult is the development of any means to ensure
redistribution of efficiency gains to broader public advantage.
In exceptional circumstances, a merger which would have- anti-competitive effects may
be permitted where one of the merging entities is in severe financial distress. The
competition authority may be persuaded that the public interest is better served by a
merger than by the failure of one of the merging entities. However, transactions of this
sort should be carefully evaluated. Sometimes the merger is not the best solution. For
instance, it may be that another firm could expand productive capacity using the assets of
the failing firm and that public welfare would be better served by this alternative solution.
Bankruptcy is painful for shareholders, but does not always have a long-term negative
effect on the economy.
2.4.2 Empirical studies of mergers.
Early literatures on mergers suggest synergistic motives as the main rationale behind
merger activity. A study conducted by Jong (1976), examined 39 companies which had
undertaken large and or persistent mergers in the period 1954-1965. He concluded that
the most that can be said there is no evidence from the sample that merger intensive
firms have higher profitability than the average industry. Kouhm (1986), observes that
acquiring firms tended to be faster growing than firms in their respective industries. This
being the case a merger of these two firms is expected to lead to improved performance.
26
Reid (1968), concluded that conglomerate mergers satisfied the desires of managers for
larger firms but did not increase earnings or market prices.
Singh and Montgomery (1987), in a study carried for the period 1958-1968 found that
conglomerate as a group raised the depressed pre merger rates of return on total assets up
to the average for all firms.
From the above empirical studies done in the field of M&A, it can therefore be observed
that results are not similar and thus there is need to carry out further research in this area.
2.4.3 Information in merger review
As part of the merger review process, the merging firms must normally provide
information to the reviewing authority. It is standard practice in jurisdictions which
impose merger review to require merging parties to submit advance notice of the
proposed transaction. The information disclosed in the pre-merger notification will
normally be used to determine if any anti-competitive concerns are present and whether
to proceed with a more detailed review of the proposed transaction. The initial
information filing typically triggers a waiting period, during which the reviewing
authority will be entitled to request further information. This process concludes with a
determination by the reviewing authority whether to proceed with a more detailed
investigation.
If the competition authority decides to proceed with a further investigation, it will obtain
more information from the merger participants.
27
Additional information is usually gathered from third parties such as competitors and
customers. Commercially sensitive information is also generally protected from public
disclosure during a more detailed review; a competition authority will normally seek
information about matters such as the following: Products, customers, suppliers, market
shares, financial performance. Activity of competitors and competitors' market shares, of
substitute products, influence of potential competition (including foreign competition).
pace of technological or other change in the relevant markets, and its impact on
competition and nature and degree of regulation in the relevant markets.
The quality of a merger review will depend heavily on the quality and range of
information available lo the reviewing authority. Nihat,Eric and Roll (2004).
2.4.4 Merger remedies
The goal of merger control laws is to prevent or remove anti-competitive effects of
mergers. Three types of remedies are typically used to achieve this goal:
Inhibition / Prohibition /Dissolution
The first remedy involves preventing the merger in its entirety, or if the merger has been
previously consummated, requiring dissolution of the merged entity.
Partial Divestiture
A second remedy is partial divestiture. The merged firm might be required to divest
assets or operations sufficient to eliminate identified anti-competitive effects, with
permission to proceed with the merger in other respect.
28
Regulation /Conditional Approval
A third remedy is regulation or modification of the behavior of the merged firm in order
to prevent or reduce anti-competitive effects. This can be achieved through a variety of
one-time conditions and on-going requirements. The first two remedies are structural, and
the third remedy is behavioral. Behavioral remedies require ongoing regulatory oversight
and intervention. Structural remedies are often more likely to be effective in the long run
and require less ongoing government intervention.
Partial divestiture or behavioral constraints are less intrusive in the operation of market
than preventing a merger from proceeding or requiring dissolution of a previously
completed merger. Partial divesture can reduce or eliminate anti-competitive effects
while preserving some of the commercial advantages of a merger. Nihat et al (2004).
2.5 Performance Measures
Sharpe et al (1999), lists the following as the other measures of performance.
Market capitalization
This is the total market value of a company at the bourse. It is computed as the prevailing
share price times the total number of shares. It is also the total market value of all quoted
companies at the stock exchange. It keeps changing on a daily basis subject to changes in
share price.
Turnover
This is the total number of shares traded at the stock exchange.
29
Share price
This is the value of a company's share at a given time. It is very dynamic and keeps
changing all the time.
Net Asset Value per Share (NAVPS)
The NAVPS is calculated by dividing the total net assets (fixed assets plus net current
assets) by the number of shares outstanding as at the end of that year. Simply this is the
net tangible assets attributable to the ordinary shareholders divided by the number of
shares in issue.
Net Asset Value (NAV) is of little use in investment decisions as in most cases it will
usually be: well below the value calculated using earnings yield. However NAV is fairly
descriptive in the case of property companies that tend to have low earnings compared
with their asset value.
Earnings Per Share (EPS)
This is calculated by dividing the net profits alter tax of a company (less any dividends on
preference shares that the company may have paid) for a given year or period by the
number of equity shares outstanding at the end of the year. The EPS does not reveal the
quality of earnings, but as a thumb rule, the higher the EPS, the better.
Price to Earning Ratio (P/E Ratio)
Earnings of a stock divided by its price is what one gets in return. This ratio tells one how
cheap or expensive a stock is in the market place compared with its peers or against other
stocks in other industries.
30
This ratio is obtained by dividing the current market price of a share by its
issuing company's annual earning per share or the market capitalization to the entire net
profit (total earnings).This ratio indicates how many years it would take one to recoup
one's investment in a stock at current market price if the company's performance was to
stay frozen at the current level.
2.5.1 Other measures of performance
By relating share prices to their actual profits, the Price to Earnings ratio (P/E) highlights
the connection between share prices and recent company performance. If earnings move
up with share prices the ratio stays the same. But if stock prices gain in value and
earnings remain the same or go down, the P/E rises. For example, if a stock price was
Kshs70 and it got Kshs2 in earnings, the P/E is 35, historically high.
Price-To-Book Ratio (IVB Ratio)
A ratio used to compare a stock's market value to its book value. It is calculated by
dividing the current closing price of the stock by the latest quarter's book value (book
value is simply total assets minus intangible assets and liabilities). A lower IVB ratio
could mean that the stock is undervalued. However, it could also mean that something is
fundamentally wrong with the company. This ratio also gives some idea of whether
you're paying too much for what would be held if the company went bankrupt
immediately.
31
Return on Investment (ROI)
The monetary benefits derived from having spent money on developing or revising a
system. The intangibles are sometimes the most important benefits, but because many of
them may be long term, they are typically the most difficult to quantify.
Return on Assets – (ROA)
A useful indicator of how profitable a company is relative to its total assets. Calculated
by dividing a company's annual earnings by its total assets, ROA is displayed as a
percentage.
Net Income
Total Assets
Note: Some people add interest expense back into net income when performing this
calculation because it measures operating returns before cost of borrowing.
Return on Equity (ROE)
This is a measure of a corporation's profitability, calculated as:
Net Income
Shareholder's Equity
The ROE is useful in comparing the profitability of a company to other firms in the same
industry.
32
Return on Investment Capital – (ROIC)
A calculation used to determine the quality of a company. The general definition for
ROIC is as follows:
Net Income -Dividends
Total Capital
Total capital includes long term debt and common and preferred shares.
2.6 Market Based Valuation
There are several methods used to value companies and their stocks. They try lo give an
estimate of their fair value, by using fundamental economic criteria. This theoretical
valuation has to be perfected with market criteria, as the final purpose is to determine
potential market prices.
According to Thomas and Weston (1992), some of the methods of stock valuation are:
Fundamental criteria (Fair value)
The most theoretically acceptable stock valuation method, called income valuation or
discounted cash flow method, involves discounting the profits (dividends, earnings, cash
flows) the stock will bring to the stockholder in the foreseeable future, and a final value
on disposition. The discount rate normally has to include a risk premium. In some cases
an asset valuation is also made.
33
This entails analyzing the assets and liabilities of the firm. This type of valuation is
typically done if the company is expected lo cease operations, it will provide a
"termination value" rather than the "ongoing operations value" obtained from the income
valuation method.
Market criteria (Potential price)
Some feel that if the stock is listed in a well organized stock market, with a large volume
of transactions, the listed price will be close to the estimated fair value. This is called the
efficient market hypothesis. On the other hand, studies made in the field of behavioral
finance tend to show that deviations from the fair price are rather common, and
sometimes quite large.
Thus, in addition to fundamental economic criteria, market criteria also has to be taken
into account (market-based valuation). Valuing a stock is not only to estimate its fair
value, but also to determine its potential price range, taking into account market
behavioral aspects.
One of the behavioral valuation tools is the stock image; a coefficient that bridges the
theoretical fair value and the market price.
A stock image is a stock valuation coefficient. It links the estimated economic value (fair
value) and the stock market price. This coefficient, usually between .3 and 3, is related to
the stock behavioral category.
34
Technical Analysis
This is a method of evaluating securities by analyzing statistics generated by market
activity, such as past prices and volume. Technical analysis does not attempt to measure a
security's intrinsic value, but instead use charts to identify patterns that can suggest future
activity. Technical analysts believe that the historical performance of stocks and markets
are indications of future performance.
In a shopping mall, a fundamental analyst would go to each store, study the product that
is being sold, and then decide whether to buy it or not. By contrast, a technical analyst
would sit on a bench in the mall and watch people go into the stores. Disregarding the
intrinsic value of the products in the store, his or her decision would be based on the
patterns or activity of people going into each store.
Fundamental Analysis
This is another method of evaluating securities by attempting to measure the intrinsic
value of a particular stock.
Fundamental analysis studies everything from the overall economy and industry
conditions, to the financial condition and management of companies.
In other words, it is the use of real data to evaluate a stock's value. The method uses
revenues, earnings, future growth, return on equity, profit margins, and other data to
determine a company's underlying value and potential for future growth.
35
2.7 Conceptual Framework
The study is based on the assumption that the independent variables affect the dependent
variable. The independent variables will be extensively discussed in the literature review.
Mergers and Acquisitions (y) Contribute to {Increase in market share of companies
(x1)} + {Enhanced profitability of companies (x2)} + {Diversification of risks in the
companies (x3)} + {Achievement of Synergy (x4)} + {Return on Investment (x5)}
(y) = (x1) + (x2) +(x3) +(x4) +(x5)
Figure 2.1:-The Conceptual Framework
36
Dependent variable
MERGERS AND ACQUISITIONS
(y) Affects
Independent variables
Increase in market share (x1)
Enhanced profitability of companies (x2)
Diversification of risks in companies (x3)
Achievement of Synergy (x4)
Return on Investment (x5)
Source: Researcher 2008
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
The section covers the research design, population and sample size, data collection
methods and procedures as well as data analysis.
3.1 Research Design
The design of this research was a survey. A survey research seeks to obtain information
that describes existing phenomena by asking individuals about their perceptions, attitude,
behaviour or values .Mugenda and Mugenda(2003). This survey was a descriptive study
that collected data from the firms that submitted Merger Notifications to the Monopolies
and Price Control(MPC) in the years 2001 to 2004. This study documented the firm’s
experiences in the mergers and acquisition processes. It also endeavored to establish the
managers’ perception on whether the shareholder’s value was created or destroyed after
the merger and acquisition activities were completed. The study also sought to document
the management’s most or least important factors that in their view, contributed to the
success of failure in the implementations of these strategies. The other factors that were
sought and included in this study were the management’s perception in on importance of
post merger acquisition activities.
37
3.2 Target Population
The population of the study comprised of all merger control notifications received and
processed by the Commissioner of Monopolies and Prices in the years 2001 to 2004 (see
appendix I). This data may have some limitations.
The distinction between takeovers and mergers in some years were not indicated. The
firms that were listed in the MPC reports include either public, private, locally, foreign
owned or both although no distinction has been made. It was also appropriate to
incorporate some questions relating to the firms’ profile in the first part of the
questionnaire. Consequently, a census survey was carried out. The available data at the
time of this study was for the years 2001 to 2004. It was therefore not possible to
expand the size of the population beyond this period. However, the target population for
this study comprised 71 companies.
3.3 Data Collection Methods and Instruments
Primary data was collected using structured undisguised and self-administered
questionnaire. The questions were both open- ended and close-ended. The researcher felt
that the respondents had practical experiences on the full process of mergers and
acquisitions which helped crystallize their opinion. The likert scale was used to measure
perception, attitude, values and behaviour and to help minimize subjectivity and make
possible use quantitative analysis. Mugenda and Mugenda(2003). The respondent was to
check one of the offered five fixed alternative expressions such as strongly disagree,
agree, neither agree or disagree, agree and strongly disagree comprising of a continuum.
In this five point continuum, values 1, 2,3,4,5, were assigned.
38
These values expressed the relative weights and direction, determined by the
favourableness or unfavourableness of the item .Nachmias and Nachmias(2003).
The questionnaires were distributed through postal mail with an enclosed self-addressed
return envelope to help increase the response rate. The researcher followed this with
telephone calls and personal visits.
The shareholders of the company were convinced that once the businesses merge, or
there is an acquisition, value will be created. It was therefore very difficult to convince
the shareholders of the companies to merge or carry out an acquisition transaction if they
do not foresee any benefits. The Board of Directors therefore, through the Chief
Executive Officer (CEO), were involved in a merger or an acquisition process. It was
therefore, appropriate to target the CEO, as a respondent to this questionnaire or a senior
partner in a partnership business as they were the most appropriate persons to complete
the questionnaire.
The questionnaire was developed and consisted of three parts:
The first part of questions was to tap into the relevant information and the profile of the
respondents. This assisted the researcher on the background information of firms that
merged or acquired a target firm.
The second set of questions sought to establish the experiences of the firms in the merger
and acquisition process and reasons for adopting these strategies. The questions also
addressed the approval process within the Competition Law.
39
The third part of questions sought to investigate the respondent's perception of mergers
and acquisitions as regards the factors contributing to the success or failure of M&A, post
merger activities, turnover of staff and creation of shareholders wealth as a result of
mergers and acquisitions
These are sets of questions that were designed to seek the perceptions of the managers.
3.4 Research Area
The research covered all the companies in Kenya that had undergone mergers and
acquisitions between the year 2003 and 2007. The study area was confined to Nairobi
since it is the capital city and most of the head offices of the companies under
consideration are located in Nairobi.
3.5 Sample Design and Size
The researcher used purposive sampling where he took 40% of these companies for the
study to obtain a sample of 28 companies. However, within the companies, the
researcher purposively targeted two senior managers or senior partners in the partnership
or merged companies and the Board of Directors through the CEO. There are 71
companies that have merged. The total number of respondents from the 28 companies
was 2 respondents per company to yield a sample of 56 respondents.
40
3.6 Data Analysis, Interpretation and Presentation
The returned questionnaires were checked for consistency and the correct ones were
coded. Data analysis involved descriptive statistics such as percentages, frequencies,
measure of central tendency such as means, mode and median by use of Statistical
Package for Social Sciences (SPSS). The output was in form of tables, pie chats and
graphs. Interpretation was done to allow for findings and recommendations.
41
CHAPTER FOUR:
4.0 DATA ANALYSIS AND INTERPRETATION
4.1 Introduction
This chapter presents the analysis and interpretations of the data from the field. From the
study population of 71 respondents were targeted, 60 respondents responded and returned
the questionnaire comprising of 84.5% response rate.
4.2 Analysis and Interpretation
4.2.1 Personal Data
On the name of the organization the researcher requested the respondents to indicate their
organization, from the findings of the study the study found that these organization were;
Bidco(K) Ltd. & Elianto (K) Ltd, Crown Berger & Barclays Holdings, Securicor Security
Services & Express Escorts, Smith Kline Beecham & Glaxo Wellcome (K) Ltd, Lonrho
Motors E.A. Ltd & Toyota E. A. Ltd, Lelkina Dairies Ltd & Brookside Dairies Ltd,
Africa Online Ltd & Net 2000 Ltd , SCB & Bullion Bank, Paramount Bank & Universal
Bank, Unilever & Best Foots Ltd, Barclays Trust Investment & Old Mutual As Asset
Managers, Bank of India & India Finance Ltd and Bank of India & India Finance Ltd
among others. On the respondents designation the study found that the respondents were
from various designation which were; accountant, operations manager, human resource
manager, clerk, customer service officer, financial analyst, finance manager, director and
procurement officer.
42
Figure 4.2: Gender of the respondents
Source, Author (2010)
The data in the above figure shows the study findings on the gender of the
respondents ,from the findings, the study found that majority of the respondents were
males as shown by 60%,while 40% of the respondents were females.
Figure 4.3: Number of years of service
Source, Author (2010)
On the number of years the respondents had served their respective organization, from
the findings of the study in the above table the study found that 36% of the respondent
had served their organization for period of 10 to 15 years ,those who had served their
organization for a period of 5 to 10 years were shown by 30% of all the respondents ,26%
of the respondent had served their organization for a period of more than 15 years and
8% of the respondents had served their organization for a period of 0 to 5 years .
43
Table 4.1: Education level
Frequency Percent
Diploma 6 12
Degree 26 52
Post graduates degree 18 36
Total 50 100
Source, Author (2010)
The data in the above table shows the respondent education level, from the finding the
study found that majority of the respondents had a university degree as shown by 52.1%
of the respondents, 35.4% of the respondent had postgraduate’s degrees and 12.5% of the
respondents were diploma holders. On the location of the main offices of the
respondent’s organization, the study found that most of the organization had their main
offices located in Nairobi CBD area, Upper hill, industrial area, and Westland and
Kariobangi area. On the years the organization was established, the study found that this
ranged between 1960 to 1993. On the number of outlets the organization had, the study
established that this ranged between 5 to 13 outlets.
Figure 4.4: Ownership composition of company
Source, Author (2010)
44
On the ownership composition of the company, the study revealed that majority of the
companies as shown by 52% of the respondents were locally owned, those that were
partly local and partly foreign were shown by 36% of the respondent while those that
were foreign were shown by 12% of the respondents.
Table 4.2: Type of companyFrequency Percent
Privately owned 8 16
Part private/part public 27 54
Publicly owned 15 30
Total 50 100
Source, Author (2010)
The data in the above table shows the type of company, from the findings in the above
table the study found that majority of the companies were partly private and partly public
as shown by 54% of the respondents, 30 % of the respondents indicated that their
companies were publicly owned and 16% of the respondents indicate that their company
were privately owned.
4.2.2 Firm’s Profile
On the name of the firm before merger the study revealed that the names were; Bidco(K)
Ltd, Elianto (K) Ltd, Crown Berger ltd , Barclays Holdings, Securicor Security Services
ltd, Express Escorts, Smith Kline Beecham , Glaxo Wellcome (K) Ltd, Lonrho Motors
E.A. Ltd , Toyota E. A. Ltd, Lelkina Dairies Ltd , Brookside Dairies Ltd, Africa Online
Ltd , Net 2000 Ltd , SCB , Bullion Bank, Paramount Bank, Universal Bank, Unilever ,
Best Foots Ltd, Barclays Trust Investment , Old Mutual As Asset Managers, Bank of
45
India , India Finance Ltd and Bank of India and India Finance Ltd. On the date of
incorporation of the company, the study found that date of incorporation ranged from 30 th
June 1968 to 23rd September 1990. On the name of the company after merger and take
over, the study found that these names were; Bidco (K) Ltd, Crown Berger, Securicor
Security Services, Smith Kline Beecham & Glaxo Wellcome (K) Ltd, Toyota E. A. Ltd,
Brookside Dairies Ltd, Africa Online Ltd, SCB & Bullion Bank, Paramount Bank,
Unilever Ltd, Old Mutual Trust Investment, Bank of India Ltd. On whether the
respondent company had completed the merger or acquisition to its conclusion, the study
revealed that all the companies had completed merger and acquisition to its conclusions.
Table 4.3: Legal structure of the firmFrequency Percent
Partnership 9 18
Part private/part public 27 54
Publicly owned 14 28
Total 50 100
Source, Author (2010)
On the legal structure of the firm, the study established that majority of the firms were
partly private and partly public as shown by 54% of the respondent,28% of the
respondents indicated that their firms were publicly owned and those companies that their
legal structure was partnership was shown by 18%.
46
Table 4.4: Classification of organization in terms of ownership
Frequency Percent
Locally owned 27 62.8
Both Local/Foreign Owned 16 37.2
Total 43 100
Source, Author (2010)
On the classification of the firms in terms of ownership, the findings of the study in the
above table shows that majority of the firms were locally owned as shown by 62.8% of
the respondents and those that were both local and foreign owned were shown by 37.2%
of the respondents.
Table 4.5: Sector of the organization
Frequency Percent
Manufacturing 22 51.2
Agriculture 8 18.6
Service 13 37.2
Total 43 100
Source, Author (2010)
The study also requested the respondents to indicate the sector in which their
organization belonged, from the finding of the study in the above table, the study found
that majority of organization were in manufacturing sector as shown by 51.2%, those
were in the service sector were shown by 37.2% of the respondents while 18.6% of the
respondents indicated that their firms were in agriculture sector.
47
4.2.3 Experience of the Firm
Whether the Firm Was a Merger (M) or a Takeover (T)
According to the study, all the respondents (100%) reported that their firms were
mergers.
Table 4.6: The Sort of Merger or Acquisition That the Company Undertook
Frequency Percent
Horizontal merger 27 54
Vertical merger 16 32
Concentric merger 2 4
Conglomerate merger 5 10
Total 50 100Source, Author (2010)
The study also required the respondents to indicate the sort of merger or acquisition that
their companies undertook. From the study, most of the respondents as shown by 54%
reported that their companies undertook a horizontal merger, 32% said vertical merger,
10% of the respondents said conglomerate merger, while a small proportion of
respondents as shown by 4% reported that their firms undertook a concentric merger.
48
Table 4.7: Reason/S Why the Organization Undertook the Merger
Yes No
Increase market share 78.3 21.7
Acquire state- of -the art technology 60.0 40.0
To diversify in a growth business 66.7 33.3
Overcome entry barrier 41.7 58.3
Acquire brand loyalty 51.7 48.3
Enter to a new geographical area 68.3 31.7
Comply with new legislation 60.0 40.0Source, Author (2010)
The study also sought to establish the reasons why the organizations took the merger.
According to the findings, 78.3% of the respondents said in order to increase market
share, 68.3% said to enter to a new geographical area, 66.7% said to diversify in a growth
business, the respondents who said to acquire state- of -the art technology and to comply
with new legislation were shown by 60% each, 51.7% said to acquire brand loyalty,
while 41.7% of the respondents reported that they took a merger in order to overcome
entry barrier.
Duration Taken To Receive an Approval from the Commissioner of Monopolies and
Price
According to the findings, the study found that it took the firms a minimum of 3 months
and a maximum of 13 months to receive an approval from the commissioner of
monopolies and price
49
Table 8: Whether the Firm Was Subjected To Appeal to the Tribunal
Frequency Percent
Yes 38 76
No 12 24
Total 50 100Source, Author (2010)
The respondents were also asked whether their firms were subjected to appeal to the
tribunal. From the results, the majority of respondents (76%) reported that their firms
were subjected to appeal to the tribunal, while 24% said that their firms were not
subjected to appeal to the tribunal.
Duration It Take For the Appeal to Be Concluded By the Tribunal
On the duration it took the firms for the appeal to be concluded by the tribunal, the study
established that it took a minimum of 5 and a maximum of 12 months.
Table 4.9: Whether the Firm Appealed To the High Court
Frequency Percent
Yes 31 62
No 19 38
Total 50 100Source, Author (2010)
According to the findings in the above table, most of the respondents as shown by 62%
said that their firms appealed to the high court, while 38% reported that their firms did
not appeal to the high court.
50
Reasons for Appeal
From the findings, the reasons why firms appeal to the high court include; where the
authority blocks a merger the parties can appeal its decision to the High Court, appeal
against a board decision against them, the merging parties may also challenge a merger
decision imposing a remedy and complains by the minority shareholders of the involved
firms.
Duration It Took To Conclude the Appeal in the High Court
According to the findings, it took the firms that appealed to the high court a minimum of
2 and a maximum of 14 months to conclude the appeal in the high court.
Duration the Firm Took To Conclude the Negotiation with the Other Firm
From the findings, it took the firm’s 3-6 months to conclude negotiations with the other
firm.
An Estimate of the Merger or Acquisition Budget
The study also sought to establish the estimate of the merger or acquisition budget.
According to the study, the budget ranged between Kshs 500, 000-2M.
Table 4.10: The Degree of Involvement of Managers in the Acquisition or Merger Process
Frequency Percent
Very little 5 10.0
Moderately 8 16.0
A lot 37 74.0
Total 50 100Source, Author (2010)
The respondents were also requested to indicate the degree that they involved managers
in the acquisition or merger process. From the study, most of the respondents as indicated
by 74% reported that they involved their managers a lot in the acquisition or merger
51
process, 16% reported that they moderately involved the, while 10% of the respondents
said that they involved them to a very little extent.
Table 4.11: Whether The Merger or Acquisition Undertaken the Firm Is A Success
Frequency Percent
Yes 47 94
No 3 6
Total 50 100Source, Author (2010)
From the findings in the above table, the majority of the respondents as indicated by 94%
termed the merger or acquisition undertaken by their firm a success, while a small
proportion of respondents as indicated by 6% reported that the merger or acquisition
undertaken by their firm was not a success
Table 4.12: Whether the Respondents Would Recommend a Merger or an Acquisition Again
Frequency Percent
Yes 36 72.0
No 14 28.0
Total 50 100Source, Author (2010)
The respondents were therefore asked whether they would you recommend a merger or
an acquisition again. From the study, the majority of respondents as shown by 72% said
that they would recommend a merger or an acquisition again, while 28% of the
respondents felt that they would not recommend a merger or an acquisition again.
4.2.4 Regression Analysis
A multivariate regression model was applied to determine the relative importance of each
of the five variables with respect to establish the effects of mergers and acquisitions on
financial performance of companies. The regression model was as follows:
y = β0+ β1X1 + β2X2 + β3X3 + β4X4 + β5X5ẹ
52
Where:
y = merger and acquisition
β0 = Constant Term
β1= Beta coefficients
X1= market share
X2= profitability of the company
X3= diversification of risk
X4= Achievement of Synergy
X5= Return on Investment
Table 4.13: Model Summary
Model RR Square
Adjusted R Square
Std. Error of the Estimate
Change Statistics
R Square Change
F Change df1 df2
Sig. F Change
1 .087(a) .090 .881 4.223 .009 .009 1 1 .938Source, Author (2010)
a Predictors: (Constant), market share, profitability of the company, diversification of risk
, Achievement of Synergy and Return on Investment. Adjusted R2 is called the coefficient
of determination and tells us how merger and acquisition varied with the market share,
profitability of the company, diversification of risk, Achievement of Synergy and Return
on Investment. From data in the table above, the value of adjusted R2 is 0.881. This
implies that, there was a variation of 88.1% of merger and acquisition with market share,
profitability of the company, diversification of risk, Achievement of Synergy and Return
on Investment at a confidence level of 95%.
Table 4.14: Coefficients results
53
Model Unstandardized Coefficients
Standardized Coefficients t Sig.
B Std. Error Beta 1 (Constant) 0.833 1.156 1.839 .317 market share 0.771 .061 .097 .097 .938
profitability 0.216 .018 .094 .094 .923
diversification of risk 0.358 .311 .090 .090 .978
Achievement of Synergy 0.574 .418 .097 .097 .967
Return on Investment 0.314 .319 .087 .091 .312
Source, Author (2010)
a Predictors: (Constant), market share, profitability of the company, diversification of risk
, Achievement of Synergy and Return on Investment. From the data in the above table,
there is a positive relationship merger and acquisition and the predictor factors which are
market share, profitability of the company, diversification of risk, Achievement of
Synergy and Return on Investment. The established regression equation was
Y = 0.833 + 0.771 X1 + 0.216 X2 + 0.358 X3 + 0.574 X4 + 0.314X5
From the above regression model, merger and acquisition of companies would be 0.833,
holding the predictors factors constants. it was also established that a unit increase in
market share would cause an increase in merger and acquisition by a factor of 0.771, a
unit increase in profitability would cause an increase in merger and acquisition by a
factor of 0.216, also a unit increase in diversification of risk would cause an increase in
merger and acquisition by a factor of 0.358,further unit increase in achievement of
synergy would cause an increase in merger and acquisition by a factor of 0.574, also a
unit increase in return on investment would lead to increase in merger and acquisition by
a factors of 0.314. This infers that there exist positive relationships between merger and
54
acquisition and predictor factors which are market share, profitability of the company,
diversification of risk, achievement of synergy and return on investment.
55
CHAPTER FIVE:
5.0 DISCUSSION CONCLUSION AND RECOMMENDATION
5.1 Introduction
This chapter presents the discussion of the findings from chapter four, conclusions and
also recommendations based on the objectives of the study. The study had sought to
establish the effects of mergers and acquisitions on financial performance of companies.
5.2 Discussion
The study established that the name of the firm before merger were; Bidco(K) Ltd,
Elianto (K) Ltd, Crown Berger ltd , Barclays Holdings, Securicor Security Services ltd,
Express Escorts, Smith Kline Beecham , Glaxo Wellcome (K) Ltd, Lonrho Motors E.A.
Ltd , Toyota E. A. Ltd, Lelkina Dairies Ltd , Brookside Dairies Ltd, Africa Online Ltd ,
Net 2000 Ltd , SCB , Bullion Bank, Paramount Bank, Universal Bank, Unilever , Best
Foots Ltd, Barclays Trust Investment , Old Mutual As Asset Managers, Bank of India ,
India Finance Ltd and Bank of India and India Finance Ltd. On the date of incorporation
of the company, the study found that date of incorporation ranged from 30th June 1968 to
23rd September 1990. On the name of the company after merger and take over, the study
found that these names were; Bidco (K) Ltd, Crown Berger, Securicor Security Services,
Smith Kline Beecham & Glaxo Wellcome (K) Ltd, Toyota E. A. Ltd, Brookside Dairies
Ltd, Africa Online Ltd, SCB & Bullion Bank, Paramount Bank, Unilever Ltd, Old
Mutual Trust Investment, Bank of India Ltd. On whether the respondent company had
completed the merger or acquisition to its conclusion, the study revealed that all the
companies had completed merger and acquisition to its conclusions.
56
On the legal structure of the firm, the study established that majority of the firms were
partly private and partly public as shown by 53.3% of the respondent,28.4% of the
respondents indicated that their firms were publicly owned and those companies that their
legal structure was partnership was shown . The study also found that majority of the
firms was locally owned as shown by 62% of the respondents and those that were both
local and foreign owned were shown by 38% of the respondents. The study found that
majority of organization were in manufacturing sector as shown by 54%, those were in
the service sector were shown by 38% of the respondents while 18% of the respondents
indicated that their firms were in agriculture sector. It was also revealed by the study that
all firms their firms were mergers. The study also established that the sort of merger or
acquisition that their companies undertook were horizontal merger as shown by 54% ,
vertical merger as shown by 32% 10% of were conglomerate, while a small proportion of
respondents as shown by 6% reported that their firms undertook a concentric merger.
The study also establishes the reasons for organizations to take the merger. According to
the findings, 78% of the respondents said in order to increase market share, 68% said to
enter to a new geographical area, 66% said to diversify in a growth business, the
respondents who said to acquire state- of -the art technology and to comply with new
legislation were shown by 60% each, 52% said to acquire brand loyalty, while 42% of the
respondents reported that they took a merger in order to overcome entry barrier. The
study found that it took the firms a minimum of 3 months and a maximum of 13 months
to receive an approval from the commissioner of monopolies and price. On whether their
57
firms were subjected to appeal to the tribunal. The study found that the majority of
respondents 76% reported that their firms were subjected to appeal to the tribunal, while
24% said that their firms were not subjected to appeal to the tribunal. On the duration it
took the firms for the appeal to be concluded by the tribunal, the study established that it
took a minimum of 5 and a maximum of 12 months.
On whether the firms appealed to high court, the study found that majority of the
respondent as shown by 62% said that their firms appealed to the high court, while 38%
reported that their firms did not appeal to the high court. The reasons why firms appeal to
the high court include; where the authority blocks a merger the parties can appeal its
decision to the High Court, appeal against a board decision against them, the merging
parties may also challenge a merger decision imposing a remedy and complains by the
minority shareholders of the involved firms. On the duration it took the firms that
appealed to the high court a minimum of 2 and a maximum of 14 months to conclude the
appeal in the high court. It was also revealed that it took the firm’s 3-6 months to
conclude negotiations with the other firm. The study also established the estimate of the
merger or acquisition budget. According to the study, the budget ranged between Kshs
500, 000-2M.
On indicate the degree that they involved managers in the acquisition or merger process.
It was revealed that most of the respondents as indicated by 74% reported that they
involved their managers a lot in the acquisition or merger process, 16% reported that they
moderately involved the, while 10% of the respondents said that they involved them to a
very little extent.
58
On the general assessment of merger ,the study found that the majority of the
respondents as indicated by 93.3% termed the merger or acquisition undertaken by their
firm a success, while a small proportion of respondents as indicated by 6% reported that
the merger or acquisition undertaken by their firm was not a success. On whether the
respondents would recommend a merger or an acquisition again, majority of respondents
as shown by 72% said that they would recommend a merger or an acquisition again,
while 28 % of the respondents felt that they would not recommend a merger or an
acquisition again.
The study also established a regression equation which was;
Y = 0.833 + 0.771 X1 + 0.216 X2 + 0.358 X3 + 0.574 X4 + 0.314X5
From the above regression model, merger and acquisition of companies would be 0.833,
holding the predictors factors constants. it was also established that a unit increase in
market share would cause an increase in merger and acquisition by a factor of 0.771, a
unit increase in profitability would cause an increase in merger and acquisition by a
factor of 0.216, also a unit increase in diversification of risk would cause an increase in
merger and acquisition by a factor of 0.358,further unit increase in achievement of
synergy would cause an increase in merger and acquisition by a factor of 0.574, also a
unit increase in return on investment would lead to increase in merger and acquisition by
a factors of 0.314. This infers that there exist positive relationships between merger and
acquisition and predictor factors which are market share, profitability of the company,
diversification of risk, achievement of synergy and return on investment.
59
5.3Conclusion
From the above discussion the study concludes that mergers and acquisitions increase the
market share of companies the firms entered into new geographical areas, diversify
business growth, acquire states of art and technology, comply with new legislation,
acquire brand loyalty and overcome entry barriers. The study concludes that as result of
merger the company acquired larger market share thus increased profitability.
The study also concludes that mergers and acquisitions assisted in the attainment of
returns on investment in companies, the study also concludes that the benefits of synergy
that is achieved through adoption of merger and acquisition were; increased market share,
acquiring state of technology, complying with new regulation , acquire brand loyalty and
overcome entry barriers . The study also established a regression equation for the study
was;
Y = 0.833 + 0.771 X1 + 0.216 X2 + 0.358 X3 + 0.574 X4 + 0.314X5
This infers that there exist positive relationships between merger and acquisition and
predictor factors which are market share, profitability of the company, diversification of
risk, achievement of synergy and return on investment.
5.4Recommendation
From the above discussion, conclusion the researcher recommends that small companies
should adopt merger and acquisition as this will help them in entering into new
geographical areas, diversify their business growth, acquire states of art and technology,
comply with new legislation, acquire brand loyalty , overcome entry barriers, increase
their profitability and return on investment. The study recommends an in-depth study to
investigate the challenges affecting merger and acquisition of companies.
60
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APPENDICES
Appendix I: Introduction Letter
Kennedy Murithi
P.O Box .............
NAIROBI
Dear Respondent,
REQUEST TO FILL THE QUESTIONNAIRE FOR RESEARCH PURPOSE
This is to request you to kindly fill in the attached questionnaire for research purpose.
The research topic is: - “An Investigation into Effects of Mergers and Acquisitions on
Financial Performance of Companies in Kenya (2003 - 2007)”.
The information sought from you will be treated with utmost confidence, and results of
this study will be available for your use/reference.
Thank you.
Yours sincerely,
Kennedy Murithi
65
Appendix II : Questionnaire
PART ONE – PERSONANAL DATA
1. Please indicate;
a) Name of organization ……………………………………..………..
b) What is your Designation ……………………………………………..
c) State your Gender (Tick where appropriate)
Male ( ) Female ( )
d) Number of Years served (Tick where appropriate)
0-5( ) 5-10 ( ) 10-15 ( ) Over 15 years ( )
e) Educational Level (Tick where appropriate)
Diploma ( ) Degree ( ) Post Graduate Degree ( )
f) Location of the main office …………………………………………….
g) When the organization was established ……………………………
h) How many outlets does the organization have ……………………….
2. Indicate the answer that best represents the ownership composition of
your company (Tick where appropriate)
Local ( ) Foreign ( )
Part Local/ Part Foreign ( ) Governmental ( )
3. Kindly indicate whether your company is:
Privately owned ( ) Part private/part public ( )
66
Publicly owned ( ) Parastatal ( )
PART TWO – FIRM’S PROFILE
(1) Name of the firms before the merger or take over.
.....................................................................................................................
(2) Date of incorporation of your firm.
……………………………………………………………………………
(3) Name of the firm after the merger or take over.
.............................................................................................
(4) Did your company complete the merger or acquisition to its conclusion? (Tick
appropriately)
If No, please state the reason/s
.....................................................................................................................................
.....................................................................................................................................
.....................................................................................................................................
If yes, then proceed and complete the remaining part of this questionnaire.
67
Yes No
(5) State the legal structure of your firm(Tick appropriately)
(i) Partnership ( )
(ii) Privately owned company ( )
(iii) Publicly owned company ( )
If your firm is (i) or (ii) above, please complete (6) below.
(6) How would you classify your organization in terms of ownership?
(Tick appropriately).
(a) Locally Owned ( )
(b) Foreign Owned ( )
(c) Both Local/Foreign Owned ( )
(7) The sector your organization is operating in (Tick appropriately).
ManufacturingAgricultureService
PART THREE – EXPERIENCE OF THE FIRM
(1) Could you say if your firm was a Merger (M) or a Takeover (T)?
(Tick appropriately).
M ( ) T ( )
68
(2) What sort of merger or acquisition did your company undertake?
(Tick appropriately).
Horizontal Merger
Vertical Merger
Concentric Merger
Conglomerate Merger
(3) Please state reason/s why your organization undertook the merger
(Tick where appropriate)
(a) Increase market share
(b) Acquire state- of -the art technology
(c) To diversify in a growth business
(d) Overcome entry barrier
(e) Acquire brand loyalty
(f) Enter to a new geographical area
(g) Comply with new legislation.
(f) Any other (specify)….................................................................................
Approval Process within the framework of Kenya competition law.
(a) How long did you take to receive an approval from the Commissioner of Monopolies
and Price'? Months
69
(b) Was your firm subjected to appeal to the Tribunal?
(Tick appropriately). Yes No
(c) If ye, how long did it take for the appeal to be concluded by the tribunal?
Months
(d) Did you appeal to the High Court? (Tick appropriately).
Yes No
If yes, reasons for appeal............................................................
(e) For how long did it take to conclude the appeal in the High Court?
Months
Negotiation with the target firm
(a) How long did your firm take to conclude the negotiation with the other firm?
Months
(b) Give an estimate of the Merger or Acquisition budget. Kshs
(c)To what degree did you involve your managers in the acquisition or merger process?
(Please indicate by a tick on the table overleaf using the following scale).
Not at all - 1
Very little -
Moderately -
A lot -
Intensively -
70
General Assessment
(a)Would you term the merger or acquisition undertaken by your firm a success?
(Please tick where appropriate).
Yes No
(b)Would you recommend a merger or an acquisition again? ( Tick where appropriate)
Yes No
This area is only for those firms which have gone through a takeover.
(a)How did you manage the takeover process?
( Tick as appropriate)
Agreeing with major shareholder
Buying stock in the market
Obtaining proxies from the shareholders
(b)State how your firm managed the resistance from other shareholders or management
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
THANK YOU FOR YOUR COOPERATION
71
Appendix III: Time Plan
PHASE ACTIVITY
DURATION
(WEEKS)
1) Proposal writing and presentation for supervision 3 Weeks
2) Instrumentation 2 Weeks
a) Pilot taking 2 weeks
b) Administration of questionnaires 2 weeks
3) Data analysis 3 weeks
4) Write up and presentation to the department for
Examination 3 weeks
Total
duration 4 ½ Months
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Appendix IV: Budget Estimate
ITEM
NO.ITEM DESCRIPTION
ESTIMATED
COST (KSHS.)
REMARKS
1 Stationary & Other Consumables 3,000.00
2 Field Visits for Research Assistants 40,000.00
3 Field Visits for Self 6,000.00
4 Subsistence Allowances 10,000.00
5 Data Analysis 2,000.00
6 Report Writing 30,000.00
7 Overheads & Incidental Expenses 12,000.00
TOTAL 103,000.00
Source: Researcher (2008)
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APPENDIX V: MERGER CONTROL NOTIFICATIONS- SOURCE MPC ANNUAL REPORTS 2001 - 2004
Name of Institution Sector Affected
1 Bidco(K) Ltd. & Elianto (K) Ltd Cooking Fat and Edible Oils
2 Crown Berger & Barclays Holdings Paints
3 Johnson & Johnson Ltd & Direct Sales and Distribution Baby Care Products
4 Raymond Woollen Mills & Heritage Woollen Mills Textiles
5 Securicor Security Services & Express Escorts Private Security
6 Elf Oil (K) Ltd & Total (K) Ltd Petroleum
7 Smith Kline Beecham & Glaxo Wellcome (K) Ltd Pharmaceuticals/ Healthcare products
g Crescent Construction Ltd & Cabro Works Ltd. Receivership
Building & Construction
9 Lonrho Motors E.A. Ltd & Toyota E. A. Ltd. Motor Industry
10 Lelkina Dairies Ltd & Brookside Dairies Ltd Dairy
11 Lonrho Hotel Africa & Starwood Hotel Hotel
12 Lonrho Motors & Lima Farm Machinery Agriculture
13 Africa Online Ltd & Net 2000 Ltd Telecommunications
14 Maasai Mara Sopa Lodge & Safari Retreat Hotel
15 SCB & Bullion Bank Banking
16 Kapila Anjarwalla & Khama Legal Consultancy
17 EABL & UDV Ltd Manufacturing (Brewing)
18 Kaitet Tea Estate & Eastern Produce Kenya Ltd Agriculture
19 Paramount Bank & Universal Bank Financial (Banking)
74
20 Kakuzi Ltd & Socfinaf Ltd
21 Unilever & Best Foots Ltd Manufacturing
22 Kenya Breweries & Castle Brewing Manufacturing
23 Iseme Kamau & Maema Advocates Legal Consultancy
24 Barclays Trust Investment & Old Mutual As Asset Managers
Financial
25 Bank of India & India Finance Ltd Financial
26 Stewart Scott Motors & Mitsubishi Motors Ltd. Automotive
27 ABN-AMRO Bank & City Bank Ltd. Financial
28 Fidelity Bank & Southern Credit Ltd Financial
29 Nampak S. Africa/Carnaud Metal Box & Crown Cork Ltd.
Manufacturing
30 Masai Mara Sopa Ltd & Tunu Ltd. Hotel
31 Aventis Crop Science & Agro Chemical Business of Bayer E.A. ltd
Agricultural Chemicals
32 Co-op Bank & Co-op Merchant Bank Ltd. Banking
33 BASF & High Chem E. A. Ltd Agriculture (Agro-Chemical)
34 Primarosa, Mwaridi, Stone Athi & King'orani Agriculture
35 Hotel Span & Spire Properties Hotel Industry
36 Kenya Commercial Bank & Savings and Loans Financial Services
37 Securicor Services & Falcon & Karen Langata Guards Security Services
38 Trust Finance Ltd & Trust Bank Ltd Banking Sector
39 Africa Online & Three Mice Interactive Media Ltd. IT (Internet Service Provision)
40 Kenol Kobil (K) Ltd & Mid Oil Africa Petroleum
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41 CROWN Berger (K) Ltd & Unibuilt (K) Ltd Manufacturing
42 SJ Johnson Wax & Bayer East Africa Pharmaceutical
43 Brac Budget Rent A Car International & Avis Europe Plc Transport
44 Eustoma K. Ltd & Penta Tancom Ltd Penta flowers Horticulture
45 East African Packaging
46 Canadian Overseas Packaging industry — Manufacturing 2003
47 Manu Spices and Millers Ltd & Spice World (K) Lid. Food
48 1CL( K) Limited & Sameer ICT Ltd Information Technology
49 Resort (K) Ltd & MS Family Town 2002 Ltd. Hotel Industry
50 Nairobi Bottlers & Anspar Beverages Ltd Soft Drink
51 Beta Healthcare International & Shellys Pharmaceutical Ltd
Pharmaceutical
52 Alexander Forbes Financial Services E. A Ltd. Bank of India and Pension Trust Services
Insurance
53 Flower Wings K. Ltd & Etcoville Investments Ltd Horticulture
54 Pan African General Insurance Ltd & Apollo Insurance Company Ltd
Insurance
55 Crown Berger & Devas Ltd & Aziz Tanners Manufacturing
56 Gfccnlands Dairy & Westlands Dairy Ltd Dairy
57 Alexander Forbes & Hyman Robertson (K) Ltd Insurance
58 Muva & Ass. & Koimburi Tucker Associates Accountancy
59 Group 4 FALCK and Securicor Plc Security Services
60 Trans-Century Ltd & Cable Holdings Ltd Manufacturing
61 Bank of Africa Kenya Ltd & Credit A)'ricole Indosuez Banking Service
76
Kenyan Branch
62 MSKK Guards Security Group & EARS Group Ltd. Security
63 MTN International Mauritius Ltd. & Kenyan Telcom B.V. (Ken Cell)
Telecommunication
64 Kemia International Ltd & Poly Synthetics Eastern Africa Ltd.
Manufacturing
65 Sameer Telecom Ltd & Kenya Telecom BV Telecommunication
66 Shell and BP Malinda and Oil Com. Petroleum
67 Homegrown Kenya Ltd & Kijabe Ltd(“Kijabe”) Horticulture
68 Dawa Pharmaceutical Ltd & Medisel (K) Ltd. Pharmaceutical
69 Fresh Del Monte Produce Inc. & Del Monte Kenya Ltd Horticulture
70 Coast Silos (K) Ltd and Kenya Ports Authority Transport
71 ALICO & CFC Group Insurance
77