BUSINESS COMBINATION AS A SURVIVAL STRATEGY IN A PERIOD OF ECONOMIC DEPRESSION.

CHAPTER ONE

1.1     INTRODUCTION

Business combination is the fusion of separate business entities into a unified whole. Business combination is one of the foremost strategy in shaping a firm's strategic posture in the time of economic depression. Before we exploit in details business combination, it is important to look at the motives or aims of business in general.

According to Pearce, J.A. and Robinson, R.B. (2005), there are three Economic goals that guide the strategic direction of almost every viable business organizations. Whether or not they are explicitly stated, a company mission statement must reflect the three Economic goals which are profitability, survival and growth.

Profitability is the mainstay goal of a business organization. Profitability provides the justification and rationale for remaining in business. No matter how it is measured or defined, profit over the long term is the clearest indication of a firm's ability to satisfy the principal claims and desires of employees and stockholders. This is why investors are only willing to invest in successful business organization such as the top players in Nigeria stock exchange market.

Business survival is another important goal of a business. Unless a firm is able to survive, it will be incapable of satisfying any of its stakeholders aims.

Lastly, the aim of business is to grow in size. A firm growth is tied to its ability to survive and be profitable. Growth means increase in size of an organization. Growth also means change, and proactive change is a necessity in a dynamic business environment.

The ability of a business enterprise to survive, grow and to make profit depends on its ability to operate effectively and efficiently in the business environment. The business environment is divided into two pails, the micro environment and macro environment. The micro-environment consists of various interest groups that make demands on the firm and with which the firm deals. The main elements of this environment are trade union, competitors, government, shareholders, distributors, consumers, suppliers and so on.

Macro environment are those element which the business does not have control over. They include demography, economic, political, socio-cultural factors, technology, competitor and others. The business enterprise must adapt to the environment by adopting measures that will enable them cope with such factors that may pose a threat or at the same time present opportunities for profitable business operations. In a bid to cope with these and exploit opportunities, business organization often formulate policies and implement strategies that will facilitate their survival and/or growth, one of such strategy is mergers and acquisitions.

Business combination is the fusion of separate business entities into a unified whole. Business combination strategies include merger, acquisition, absorption, amalgamation and takeover. These are instrument use in preventing the decline of companies and restoring them to a greater height.

Giwa (1987) stated that "merger and acquisition must be seen as an available means of saving companies from serious financial distress and providing such business with new management and better assets to new financial resources, such companies in distress are thus provided". Merger according to Kazmi, A. (2005) "A merger is a combination of two or more organization in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both organizations are dissolved and the assets and liabilities are combined and new stock is issued.”