(Lawrence) Proposal, please follow Module Guide Capstone Business Project and follow learning...

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(Lawrence) Proposal, please follow Module Guide Capstone Business Project and follow learning resources
Title: THE IMPACT OF MERGER AND ACQUISITION ON BUSINESS PROFITABILITY, SIZE, GROWTH, AND RISK

the impact of merger and acquisition on Business Profitability, Size, Growth, and Risk

A Case Study of British Petroleum

EXECUTIVE SUMMARY

This research paper will be investigating merger and acquisition’s impact on the size, profitability growth and risk of a business. In the process of doing this, this research paper will be assessing the merger and acquisition experience of one of the biggest public limited firms based in UK – British Petroleum (BP). This research paper will be giving an understanding of the critical success factors which leads to the success and failure of merger and acquisition. Since it is possible to trace merger and acquisition’s impact down to a deeper root, this research paper will be focusing on how British Petroleum merging with Amoco has impacted the organisation.

INTRODUCTION

The choice for merger and acquisition is based on finance which is a major decision for businesses on a corporate level and its effect on overall performance and efficiency is of epitome importance. Merger and acquisition are conducted from a synergic view point and it is largely expected that the merger firm’s revenue will be increased due to better efficiency, capability, excessive market share and distribution capability (Kumar and Sharma, 2019). It is expected that after the merger and acquisition, there will be reduction in the burden of the firm’s cost through better management, avoiding the duplication of resource and reduction in the cost capital. Lastly, expectations on how the tax benefit, survival, and overall performance of British Petroleum will increase has been established. The business profitability of the firm will also increase as well as the sales volume of the firm, and there will be a decrease in the firm’s cost of capital as well (Dringoli, 2016).

RATIONALE OF THE STUDY

The rationale behind this study is to be able to explain the impact of merger and acquisition on the profitability, size, growth and risk of a business. The focus of the study is going to be on British Petroleum. The study will be explaining the merger and acquisition experience which British Petroleum has undertaken in the past. An understanding of the critical success factors which leads to the success and failure of merger and acquisition will be provided in this study. There will be emphasis on how British Petroleum with Amoco’s merger and acquisition has impacted the organisation.

BACKGROUND OF THE STUDY

British Petroleum also known as BP is a petroleum company that got engaged in the biggest takeover in the industry that explores oil and gas business in 1998; there was clear synergy – behind the merger and acquisition programme was the revenue enhancement motives and the cost reduction motives. The company targeted an oil exploration firm based in USA called Amoco (Kumar, 2018, p. 217). After the merger, both firms combined became the third on the list of world largest oil and gas exploration. The merger of. British Petroleum with Amoco is a deal worth $48.2 billion which was at the time considered to be the largest merger in the oil industry and the largest takeover of a company that is American by a company that is foreign. It was a share swap deal in which the shareholders of Amoco were offered BP shares (3.97) for each of Amoco’s share of common stock (Kumar, 2018, p. 217). The conduction of the merger was focused on the reduction of duplicate usage of resources to, the increase of the operating efficiency and streamlining the drilling of a more focused oil rig. Under the structure of the merger between the two firms, the entire name and business existence of Amoco was lost, the firm started operating under the brand name of British Petroleum.

After merging with the firm, 60% of stake was enjoyed by BP and 40% of stake was enjoyed by Amoco (Rajesh, 2019). The process of conducting the merger process was done as per the merger law that was established locally – from the ant-trust authority, Delaware law and little intervention was on the offer. After the merger and with more than $40 billion in market capitalisation, BP Amoco became the largest company in Britain and one of the world’s top 3 oi majors (Kumar & Sharma, 2019). There was a lot of operational synergies gotten from the deal due to complementary strengths. The strength of BP was in its skills for exploration although it was weak in oil refinement, chemicals, distribution and marketing. On the other hand, Amoco strengths was in its marketing and distribution network. The two companies merging consolidated their combined spending on exploration which ended up being more than that of Royal Dutch Shell and Exxon. The merging of the two companies was seen as a strategic it because the operations of both companies were clearly complementary in nature making BP less sensitive to crude oil and Amoco less sensitive to natural gas and chemicals (Kumar, 2018).

RESEARCH AIM

This research is aimed at analysing the impact of merger and acquisition on the business performance of British Petroleum.

RESEARCH OBJECTIVE

· To explain the merger and acquisition experience of British Petroleum.

· To analyse the impact of merger and acquisition on the business growth, size, risk and profitability of British Petroleum.

RESEARCH QUESTIONS

· What is the experience of British Petroleum in practicing merger and acquisition?

· What is the impact of Amoco’s merger on BP’s business growth, size, risk and profitability?

LITERATURE REVIEW

According to Bergamin & Braun, (2017) there are three generic dimensions in which the merger and acquisition related discussion have roamed about, these are: the reason why a firm needs to merge itself with another firm; the method the venture of merger and acquisition will be conducted (whether in a friendly or hostile way); and what is the kind of value that emerges from a firm merging with another firm. The very idea of merger and acquisition has never been a modern-day concept due to it being traced back to the 1880’s days.

According to Ginsburg, Levin and Rocap (2019), in the world of merger and acquisition, there are five basic paradigms. A number of firms during the 80s and 1904 got involved in merger and acquisition so there can be an increase in the monopoly power of the firm. Traced back to 1915s – 30s, the second wave of the merger and acquisition focused basically on the acquisition of small firms on the same chain of value. During the second wave, the choice was made strategically instead of placing shareholders money on the motives of empire building = (Ibrahimi, 2018).

Traced down to 1965 to 1970, the reason behind the third wave of merger and acquisition is perhaps one of the most dubious reason that was used at those times. Merger and acquisition were tried by people to reduce the asymmetric risks impact on the business module (Hill & Solomon, 2016). Due to globalisation, firms keep on merging with each other in order for the cost constraint to cut off and in order to have the multinational outlook that is very necessary. That is why, in this era, the merger and acquisition incurring is basically backed by the cross-border merger mania (Dringoli, 2016).

TYPES OF MERGER AND ACQUISITION

According to Hill and Solomon (2016), the term merger is used to describe the coming together of more than two or two business enterprises to become a holding or a single business. Subsequently, the firm targeted generally loses the identity and assets of its business and, the bidding firm absorbs its liabilities. In the case of acquisition, the assets or stocks of the target firm is being tried to purchase by the bidding firm.

According to Tarba, et al. (2016), there are many shapes in which business acquisition can take. It can be complete business acquisition or purchase of the majority shares or purchase of the minority shares based on the bidding firm’s nature of interest in the target firm. However, for merger synergy to be complacently reaped, the complete business acquisition is essential.

Image Source: (Dadonas, 2017)

The process of merger and acquisition is a journey that is taken gradually and there are a number of steps that are interrelated in the process. The image below is the generic merger and acquisition process which shows the five phases of merger and acquisition from the perspective of Wyatt Deal Flow model (Galpin, 2014).

Image Source: (Dadonas, 2017)

SYNERGY GAIN THEORY

This theory according to Dringoli (2016) believes that process of merger and acquisition are done by firms to gain synergic benefits out of the two firms combined that is of target and acquirer. There is a possibility that the value of a combined firm will be greater than it functioning separately. The arousal of the gains is from the financial or operating synergies through the operation of economies of scale. There are various ways in which economies of scale occurs. This may be: because of the large scale of operation; through specialisation; or by holding inventories (Galpin, 2014). Aside from economies of scale, another variant is economies of scope. Here, the acquirer and target firm’s complementary resources are combined to generate synergy gains. This occurs when a firm creates some related goods at a lesser cost as it enjoys the experience of dealing with the products that are existing (Bruner, 2016).

FACTORS INFLUENCING SUCCESS AND FAILURES IN MERGER AND ACQUISITION

According to Epstein’s keys to merger success, there are some major factors that determines a firm being successful in merger and acquisition.

·
Synergy:
The initiative of merger and acquisition will be successful provided there are prospects to improve cut cost, revenue and save tax burdens (Bergamin and Braun, 2017).

·
Due Diligence:
There is an increase in success rate when the investigation of due diligence is done while - the financial statement of the target is reviewed; understanding strategic fit and vision’s true nature.

·
Post-merger Integration:
Here, success depends on how key relationship with stakeholders, human resources and technological operations are taken care of and managed.

·
External Factor:
The level of success of most merger and acquisition is affected by economic, cultural, political and social factors(Bruner, 2016).

IMPACT OF MERGER AND ACQUISITION ON BRITISH PETROLEUM

A paired t-test was conducted based on a 5 percent level of significance to examine if the variables of the merger has changed statistically significantly over time. The period framed as a pre-merger period was 1998-2006 and 2007-15 as a post-merger. It has been tested whether these economic variables (post and pre-merger average) contrast on a base that is statistically. Below are the paired t-test common null hypotheses.

Statistically, the average of the economic variables of the pre- and post-merger are not different. Therefore, μ (pre-merger) = μ (post -merger). Below is the result of the paired t-test (Chaplinsky, Lynch and Doherty 2017).

Table 1: Paired t-test result

IMPACT OF MERGER ON THE SHAREHOLDER’S PROFITABILITY OF BRITISH PETROLEUM

Table 2: Summarised regression results

Based on the statistical result of the regression, it is evident that the Amoco merger impact in 1998 was not successful in producing any major impact over the shareholder’s profitability of British Petroleum as expected (Mahadewi, 2018).

IMPACT OF MERGER ON THE ECONOMIC PROFIT OF BRITISH PETROLEUM

Table 3: Summarised regression result

Based on the statistical result of the regression, it is evident that the Amoco merger impact in 1998 was not successful in producing any major impact over the economic profit of British Petroleum as expected (Rajesh, 2019).

IMPACT OF MERGER ON THE SUSTAINABLE ECONOMIC PROFIT OF BRITISH PETROLEUM

Table 4: Summarised regression result

Based on the statistical result of the regression, it is evident that the Amoco merger impact in 1998 was not successful in producing any major impact over the sustainable economy of British Petroleum as expected (Chaplinsky, Lynch and Doherty 2017).

IMPACT OF MERGER ON THE GROWTH POTENTIALITY OF BRITISH PETROLEUM

Table 5: Summarised regression result

Based on the statistical result of the regression, it is evident that the Amoco merger impact in 1998 was not successful in producing any major impact over the growth opportunity of British Petroleum as expected (Kumar and Sharma, 2019).

IMPACT OF MERGER ON THE COST OF CAPITAL OF BRITISH PETROLEUM

Table 6: Summarised regression result

Based on the statistical result of the regression, it is evident that the Amoco merger impact in 1998 was successful in producing any major impact over the overall cost of capital of British Petroleum (Kumar, 2018).

IMPACT OF MERGER ON THE SALES OF BRITISH PETROLEUM

Table 7: Summarised regression result

Based on the statistical result of the regression, it is evident that the Amoco merger impact in 1998 was successful in producing any major impact over the overall sales of British Petroleum.

From the regression study, it is evident that the merger and acquisition activism of BP was not successful in acquiring the impact they desired over the probable enhancement of growth opportunity, shareholder’s profit, economic profit and sustainable economic profit. There was positive impact on the purposes of empire building; although the exposure of risk did not dip to the desired extent (Rajesh, 2019).

METHODOLOGY

According to Achari (2014), this is a specific technique or procedure used by researchers to identify, choose, process and evaluate information about a topic. In research papers, the overall reliability and validity of a study are being able to be evaluated by readers in the section of methodology. The main questions will be answered in this section: how the researcher collected data or generated data; and how the researcher analysed the data.

RESEARCH DESIGN

The research design will involve the overall strategy that will be chosen in order for the different components of the study to be integrated in a logical way. Since this research work is an explanatory study specifically examining British Petroleum’s practice of merger and acquisition with respect to Amoco, the research philosophy of this study is the interpretivism research philosophy. This philosophy is based on researchers paying a specific role in observing the social world. The qualitative research design will be adopted for this study and it will focus on acquiring information through the observations described in literature reviews and words that explore theories and concept.

METHOD OF DATA COLLECTION

In order to have an understanding of British Petroleum’s experience in merger and acquisition, the researcher will make use of secondary method of collecting data. This will be done by gathering data from corporate websites and works of past researchers. Before making use of the research and information that is gathered, the researcher will examine the reliability, relevance and timelines of the data.

RESEARCH VALIDITY AND RELIABILITY

· This research is a reliable business research because all the objectives which was stated at the beginning of the business research will be achieved.

· It is generally believed that a research’s results and conclusions will not be altered with the use of a changed sample and method; this proves that this business research is a valid research work.

DATA ANALYSIS

The data that would be collected for this research work will be analysed using interpretive phenomenological analysis. Interpretive method of analysis will enable one to understand the experience of a subject (British Petroleum) in relation to a major event (its merger with Amoco). This method of analysis will be used because it will determine the weakness or strength of the impact of merger and acquisition on British Petroleum.

ETHICAL ISSUES

· Access to the information collected will be limited to the researcher.

· The research paper will be referenced in the proper style and after the business research has been conducted, the collected data and information from digital and printed format would be destroyed.

LIMITATION FOR THE STUDY

A number of issues that are endogenous and exogenous have been noticed which could have impacted the performance of British Petroleum over the years. Therefore, it might be difficult to identify the extent to which the variables and incidences of the merger are related or correlated.

CONCLUSION

In conclusion, this proposal has been created in order to present how the research about merger and acquisition’s impact on the size, profitability growth and risk of a business will be conducted. In the process of doing this, the merger and acquisition experience of one of the top public limited firms based in UK – British Petroleum (BP) was briefly assessed. This proposal gave an understanding of how the critical success factors which leads to the success and failure of merger and acquisition will be emphasised on in the study. Since it is possible to trace merger and acquisition’s impact down to a deeper root, the research will be focussing on how British Petroleum with Amoco’s merger and acquisition has impacted the organisation.

REFERENCES

Achari, P. D., 2014.
RESEARCH METHODOLOGY.
USA: Horizon Books.

Bergamin, S. & Braun, M., 2017.
Mergers and Acquisitions: Integration and Transformation Management as the Gateway to Success.
New York City: Springer.

Bruner, R. F., 2016.
Applied Mergers and Acquisitions.
New Jersey: John Wiley & Sons.

Chaplinsky, S., Lynch, L. J. & Doherty, P., 2017.
Emerald Insight.
[Online]

Available at: https://www.emerald.com/insight/content/doi/10.1108/case.darden.2016.000051/full/html
[Accessed 8 November 2020].

Dadonas, V., 2017.
Slideshare.
[Online]

Available at: https://www.slideshare.net/VirgilijusDadonas/mergers-acquisitions-introduction
[Accessed 20 Jan 2021].

Dringoli, A., 2016.
Merger and Acquisition Strategies: How to Create Value.
UK: Edward Elgar Publishing.

Dringoli, A., 2016.
Merger and Acquisition Strategies: How to Create Value.
United Kingdom: Edward Elgar Publishing.

Galpin, T. J., 2014.
The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level.
San Francisco: John Wiley & Sons.

Ginsburg, M. D., Levin, J. S. & Rocap, D. E., 2019.
Mergers, Acquisitions, and Buyouts.
New York: Wolters Kluwer.

Hill, C. A. & Solomon, S. D., 2016.
Research Handbook on Mergers and Acquisitions.
United Kingdom: Edward Elgar Publishing.

Ibrahimi, M., 2018.
Mergers & Acquisitions: Theory, Strategy, Finance.
New Jersey: John Wiley & Sons.

Kumar, B. R., 2018.
Wealth Creation in the World’s Largest Mergers and Acquisitions: Integrated Case Studies.
Switzerland: Springer.

Kumar, V. & Sharma, P., 2019.
An Insight into Mergers and Acquisitions: A Growth Perspective.
Singapore: Springer.

Mahadewi, L., 2018. Post-merger and Acquisition Integration: A Case Review of Dial Henkel And BP Amoco.
International Journal of Business Studies (IJBS),
2(1).

Rajesh, K., 2019.
ResearchGate.
[Online]

Available at: https://www.researchgate.net/publication/329325421_British_Petroleum_Merger_with_Amoco_Integrated_Case_Studies
[Accessed 8 November 2020].

Tarba, S. Y., Cooper, S. C. L., Sarala, R. M. & Ahammad, M. F., 2016.
Mergers and Acquisitions in Practice.
United Kingdom: Taylor & Francis.

CAPSTONE PROJECT PLAN

Task	Start Date	Days	Nov 2nd	Nov 4th	Nov 8th	Nov 11th	Nov 13th
Executive summary and Introduction	Nov 2	2^nd-3^rd
Literature review of the study	Nov 4	4^th-7th
Methodology and design	Nov 8	8^th-10^th
Conclusion and limitation	Nov 11	11^th-12^th
References and Appendix	Nov 13	13^th-14^th

APPENDICES

APPENDIX 1: AN APPLICATION FOR ETHICAL APPROVAL

APPENDIX 2: RESEARCH JOURNEY DIARY

The process of completing this research work involved:

· Sourcing for information on the background of the study – British Petroleum which took me two days (from the 2^nd
to 3^rd
of Nov) to compile and write down.

· Sourcing or information for the literature review of the research work on merger and acquisition; types of merger and acquisition; stages of merger and acquisition; success factors of merger and acquisition; and the impact of merger and acquisition on British Petroleum. This took me four days to compile and write down, which was from the 4^th
to 7^th
of Nov.

· Identifying the methodology of the research work – research design, data collection mechanism. Sampling framework, research validity and reliability, and ethical issues. This took me three days to write, from the 8^th
to 10^th
of Nov.

· Concluding on the research work and identifying the limitation of the study. This took me two days to writ, from the 11^th
-12^th

· Referencing the research work and including appendices. It took me two days to cite the work and include reference list and appendices – from the 13^th
– 14^th
of Nov.

the impact of merger and acquisition on Business Profitability, Size, Growth, and Risk

A Case Study of British Petroleum

the impact of merger and acquisition on Business Profitability, Size, Growth, and Risk

A Case Study of British Petroleum

ria-merger-lawrence-yvwfezzp.docx mba-7-cbpcapstonebusinessprojectmoduleguide2020law-e4e1ps5e.pdf

(Lawrence) Proposal, please follow Module Guide Capstone Business Project and follow learning resources Title: THE IMPACT OF MERGER AND ACQUISITION ON BUSINESS PROFITABILITY, SIZE, GROWTH, AND RISK...

Table of Contents

Table of Contents

EXECUTIVE SUMMARY

INTRODUCTION

RATIONALE OF THE STUDY

BACKGROUND OF THE STUDY

RESEARCH AIM

RESEARCH OBJECTIVE

RESEARCH QUESTIONS

LITERATURE REVIEW

TYPES OF MERGER AND ACQUISITION

SYNERGY GAIN THEORY

FACTORS INFLUENCING SUCCESS AND FAILURES IN MERGER AND ACQUISITION

IMPACT OF MERGER AND ACQUISITION ON BRITISH PETROLEUM

IMPACT OF MERGER ON THE SHAREHOLDER’S PROFITABILITY OF BRITISH PETROLEUM

IMPACT OF MERGER ON THE ECONOMIC PROFIT OF BRITISH PETROLEUM

IMPACT OF MERGER ON THE SUSTAINABLE ECONOMIC PROFIT OF BRITISH PETROLEUM

IMPACT OF MERGER ON THE GROWTH POTENTIALITY OF BRITISH PETROLEUM

IMPACT OF MERGER ON THE COST OF CAPITAL OF BRITISH PETROLEUM

IMPACT OF MERGER ON THE SALES OF BRITISH PETROLEUM

METHODOLOGY

RESEARCH DESIGN

METHOD OF DATA COLLECTION

RESEARCH VALIDITY AND RELIABILITY

DATA ANALYSIS

ETHICAL ISSUES

LIMITATION FOR THE STUDY

CONCLUSION

REFERENCES

CAPSTONE PROJECT PLAN

APPENDICES

APPENDIX 1: AN APPLICATION FOR ETHICAL APPROVAL

APPENDIX 2: RESEARCH JOURNEY DIARY

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