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Purpose of the Study

A company must grow if it is to survive, this well-established maxim relates to the high degree of importance growth is for the survival of a company. Indeed, mergers and acquisitions have become one of the most widely used methods of achieving growth during the past decades. This study will primarily look the various objectives of mergers and acquisitions, as to why businesses undertake the inorganic mode of expansion. However, the main focus will be to analyse the operating performance and shareholder value of acquiring companies and to compare their performance pre and post the merger. The research will be conducted on 2 sectors in Mauritius namely insurance and oil so as to have a broader perspective on the economy and arrive at an accurate conclusion. We will begin by testing a hypothesis that mergers improve operating performance of acquiring companies. On studying the cases on the 2 sectors, a conclusion will be drawn as to whether as in previous studies, mergers do not improve financial performance at least in the immediate short term.

Table of Content
Content
1. Introduction 1.1 Historical background of mergers and acquisitions 1.2 Aims and objectives of the study 1.3 Hypothesis of the research 1.4 Structure of the research 2. Literature Review 2.1 Definitions 2.2 Motives for engaging in mergers and acquisitions 2.3 The Effects of the Motives: Post Mergers and Acquisitions Performance 3. Methodology 3.1 Research Problem 3.2 Research Design 3.3 Data Collection 3.4 Data Analysis 4. Limitations of the study 5. Gantt chart 6. Conclusion References 7 7-8 8 8 9 9 9 10 4 5 5-6 3 3 3 4

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1. Introduction
1.1 Historical Development of Mergers and Acquisitions
A merger or acquisition happens when two or more companies join together, often to share costs, increase efficiency or gain market power. Mergers and acquisitions, also referred to as M&As, is also a tool for expanding ones business or get around different laws or regulations such as tax laws or monopoly regulations (Ross, Westerfield & Jaffe,2002). Mergers and acquisitions are often regarded as a new financial phenomenon but they have since eons played an important role in the corporate restructuring of a number of leading companies over the world. Indeed from the perspective of historical development of mergers and acquisitions, they seem to pursue a historic pattern with several boom periods. In the United States, the first merger wave took place between 1890 and 1904 while the second started off at the end of World War I and continued through 1920s. Indeed, the latter part of World War II witnessed the commencement of the third merger wave and continues to the present. Despite being characterised by the fluctuations in share prices, each period of boom had some differences in payment methods and types of firms that merged or acquired (Brealey et al., 2006).

1.2 Aims and Objectives of the Study

1.2.1 Aims of the Research The main aim of the research will be to critically assess the effect of mergers and acquisitions on the operating performance of the firm. 1.2.2 Objectives of the Research To analyse the impact of mergers and acquisitions on the operating performance of firms in Mauritius. To have a strategic evaluation of the impact of mergers and acquisitions on shareholders wealth post merger and acquisition.

1.3 Hypothesis of the Research

H0: Mergers do not have any impact on operating performance and shareholder wealth of the acquiring firm. HI: Mergers improve the operating performance and shareholder wealth of the acquiring firm.

1.4 Structure of the Research

The structure of the dissertation would be split up into five chapters which have been listed below:
1. Introduction

2. Literature Review

3. Research Methodology

4. Data Findings and Analysis

5. Conclusion

2. Literature Review
2.1 Definition
Mergers and acquisitions are frequently being influenced by various financial and strategic objectives. Indeed, it is a situation whereby two organizations with often different corporate personalities, cultures and value systems are brought together (Sudarsanam, 2003). The terms merger and acquisition mutually mean a corporate grouping of two separate business organisations to form one company and they are often used synonymously in practice (Chiplin & Wright, 1987), but there are slightly different meanings between them. Academics pointed out a few differences to distinguish whether a specific activity is classified as a merger or an acquisition. A merger activity usually occurs when two separate firms which have similar size agree to form a new single company. Both firms come together to form a third entity and the owners of the combining firms remain joint owners of the new organisation (Sudarsanam, 1995). Such a motion is often referred as a merger of equals (www.investopedia.com). A typical example of a major merger is the merger between AOL and Time Warner in 2000. In contrast, in the case of an acquisition, one company is purchased by another one and then no new company is formed subsequently. It is an act of acquiring effective control over the assets or management of a company by another without any combination of businesses or organizations. This may involve the purchase of another firms assets or stock (Donald M. DePamphilis, 2008). A major acquisition that took place is that of Manulife Financial Corporation's acquisition of John Hancock Financial Services Inc in 2004 (www.investopedia.com).

2.2 Motives for Engaging in Mergers and Acquisitions

Factors influencing mergers and acquisitions constantly change with the varying legal, political, economic and social environments (Kaushal, 1995). Two common reasons which are resultant of mergers and acquisitions have been identified in Business Organisation literature; efficiency gain and strategic rationale (Neary, 2004). There is also synergy which remains one of the motives for mergers and acquisitions. Indeed, synergy has been described as 2+2=5 (Pearson, 1999). Otherwise stated, the whole would be greater than the sum of its parts (Sherman, 1998). The implication of synergy is that the combined handling of different activities in a single combined organization is better, larger or greater that what it would be in two separate entities (Bakker, Helmink, 2004). Synergies can further be categorized as being financial, operating or managerial synergies. Furthermore, another prominent reason to merger is to enjoy the advantages of growth which is imperative for the success of any organization. Mergers are considered as being inorganic means of growth which are quicker and better for firms which intend to grow compared to organic expansions such as internal expansion. Mergers bring with them additional consumer demand as well as additional capacity (Sloman, 2006). Mergers can benefit the organizations and individuals in their own way through diversification and risk management. The probability of financial failure of a conglomerate merger of two is less than that of two individual organizations (Levy and Sarnat, 1970). Also, diversification often leads to the acquiring of the needed management, technical and marketing expertise which leads to a rise in market share (Pearson, 1999). In some circumstances, the agency problem might compel managers to engage in mergers and acquisitions (Malatesta, 1983). The agency problem implies that with the separation of ownership and control, mergers and acquisitions occur when managers want to increase their wealth at the expense of acquirers shareholders benefits (Berkovitch & Narayanan, 1993).

2.3 The Effects of the Motives: Post Mergers and Acquisitions Performance
It is essential to assess the effectiveness or consequences of the various motives which force managers to engage in mergers and acquisitions. This can be established by analysing the post merger and acquisition performance for acquirers and targets. According to Bruner (2002), there exist four approaches to analyse post merger and acquisition performance namely: event studies, accounting studies, clinical studies and survey of executives. 1) Event Studies Event studies measure the abnormal returns pertaining to shareholders during the period surrounding the pronouncement of the merger. This abnormal is fundamentally the difference between the raw returns which is

simply the change in share prices and a benchmark index which may be calculated by using CAPM or S&P 500, among other indices (Krishanmurti and Vishwanath, 2008). 2) Accounting Studies Under this method, the study of financial statements and ratios to compare the pre and post merger financial performance of the acquiring company is involved. Various ratios such as return on equity or assets, EPS, liquidity among others are considered. It is also used to analyse whether the acquirers outperformed the non acquirers (Gaughan, 2007), 3) Executive Surveys It is a primary source of information collection whereby managers are asked about the success or otherwise of the merger. Views are generalized from the response of managers on the standardized questionnaires presented to them (Bruner, 2004). 4) Clinical Studies A clinical study is an inductive form of research whereby researchers often induce new insights (Bruner, 2004). The purpose of clinical studies is to fill in the gaps left by the study of the stock returns and accounting performances (Jensen, 1986). Indeed, one case or a small sample is analysed in depth and insights are derived from field interviews with executives and knowledgeable observers.

3. Methodology
I will conduct the entire research in the field of mergers and acquisitions. The study will be guided by five basic attributes of any research: Firstly, the research will be problem solving and systematic. Secondly, others will easily understand the main subject matter since it will have a logic and flow. The study will be based on facts to facilitate decision making and drawing conclusions from data collected. The smaller sample area can be investigated and can be generalized to a larger set of population, that is, it will be reductive. Lastly, it will be replicable to allow others to test it or carry our further analysis.

Merger 1- Insurance Sector The first case which will be studied is the merger of two listed insurance companies, namely La Prudence (Mauricienne) Assurances Lte and the Mauritius Union Assurance Company Limited to form the Mauritius Union Group. Merger 2 Oil and Gas Sector Secondly, the takeover of Shell Mauritius Limited by Vitol Group and Helios Investment Partners will be considered.

3.1 Research Problem

A problem well stated is a problem half solved Charles F. Kettering. The main problem which will be considered and tested in the research is related to the subject matter of mergers and acquisitions. Through this study, I will try to find out whether the operating performance of the acquiring firm is affected by merger and acquisition and enhances shareholder wealth. This problem will be considered since there have been mergers and acquisitions which have created wealth only for the acquiring firms and few have enhanced wealth for only target firms

3.2 Research Design

The research design will be help me in deciding how the research would be conducted and the tools and techniques to be employed. There are three main types of research that can be undertaken namely: 1) Explanatory Research Design 2) Descriptive Research Design 3) Causal Research Design Indeed, I will be conducting two research designs to carry out this study: 1) Descriptive Style of Research Design The choice of the above mentioned research design will be to make the analysis factual and simple by collecting concise and structured data. I will be collecting data pertaining to the mergers of La Prudence (Mauricienne) Assurances Lte and the Mauritius Union Assurance Company Limited and Shell Mauritius Limited by Vitol Group and Helios Investment Partners. The major part of this design will be a quantitative approach- an accounting study. The relevant data will mainly collected from companies annual reports, as well as online and printed publications, such as research papers and articles. This process involves the calculation of the key ratios including revenue/turnover growth rates, key profitability ratios, liquidity ratios and activity ratios.

2) Exploratory Research Design This will be conducted in a limited format. I will try to conduct an in-depth interview with some of the top executives of the above mentioned companies. The main objective of conducting in-depth interview is to have a better overview on the way the entire merger and acquisition was undertaken, the synergies involved as well as the strategy in mind by the acquiring firm. However, the limitation is that only companies where top executive appointment can be sought will be considered.

3.3 Data Collection

Two forms of data collection and information gathering techniques will reign in the research environment. They include: 1) Primary Data Collection This type of information is first hand information collected exclusively for the need of the research (Kumar, 2005). For collecting required data, I will be conducting an in-depth interview from a top executive from an acquiring company. I will be preparing a list of basic guideline questions which will make the way through the in-depth interview. The questions will be designed in such a way to help me collect primary data in a desired manner, not leading the interview to go in a different direction. 2) Secondary Data Collection The secondary form of data is present in the universe and collected by somebody else for some other purpose (Kumar, 2005). I will simply be using secondary form of data for this study. I will be collecting financial data from the different acquiring firms. Collection of financial data for certain years before and after the merger will be collected and studied by making use of secondary medium lie annual or quarterly reports, analyst reports from research companies and the Competition Commission Mauritius (CCM) which regulates mergers in Mauritius. I will analyse these data thoroughly to come to specific conclusions.

3.4 Data Analysis

Once data is collected it must be analysed. I will collect all the secondary information pertaining to mergers of the mergers of the organizations involved and only those financial details and information that will lead to the objectives of the study will be picked up. I will input all relevant data in an Excel sheet, it is where data will be entered, analysed and stored for further use. Data entry would be done on all the parameters which are chosen for analysis purposes of the acquiring firms. Data may be analysed by various forms like charts, bars and diagrams.

4. Limitations of the Study

Since most financial data relating to the companies will be a secondary source, it runs the possibility that data in annual reports may have a little bias due to potential creative accounting techniques. Moreover, despite the fact that key financial ratios will be analysed, it is probable that some other financial aspects are left behind or not analysed thoroughly. Thus, to overcome these limitations, further research to compare the results of accounting studies must be conducted by conducting event studies, survey data or clinical studies since the conclusions about the effects of mergers and acquisitions may diverge.

5. The Gantt chart 2012

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ACADEMIC WEEK Writing Research Proposal Reading Literature Finalise Objectives Draft Literature Review Devise Research Methodology Conduct In-Depth Interviews Enter Data into Computer Analyse Data Review Secondary Data Enter Data into Excel Sheet Analyse Data Draft Findings Chapter Recommendations Conclusion

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6. Conclusion
In a nutshell, the effect of mergers on the operating performance and shareholder value of two acquiring firms will be analysed. Two main methods of data collection and different research design will be used. At the end of the study, conclusion will be drawn as to whether theories on mergers and acquisitions hold in the Mauritian context or not.

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References
1. Bakker, H.J.C., Helmink, J.W.A., (2004), Successfully Integrating Two Businesses, Gower Publishing Limited, Hampshire. 2. Brealey, RA, Myers, SC & Allen, F 2006, Corporate Finance, 8th edition, McGraw-Hill Irwin 3. Bruner, R.F., (2004), Applied Mergers & Acquisitions, John Wiley & Sons, Inc, New Jersey. 4. Chiplin, B & Wright, M 1987, The logic of mergers: the competitive market in corporate control in theory and practice, Institute of Economic Affairs, London. 5. Gaughan, P.A., (2005), Mergers, Acquisitions and Corporate Restructuring. 4th ed., John Wiley & Sons, Inc., New Jersey. 6. Griffiths, A., Wall, S., (2007), Applied Economics, 11th ed, Pearson Education Limited, England. 7. Jensen, M.C., (1986), Agency Costs of free cashflow, Corporate Finance and Takeovers, The American Economic Review, vol. 76(2), pp. 323-329 8. Kaushal, V.K., (1995), Corporate Takeovers in India, Sarup & Sons, New Delhi. 9. Kumar, R., (2005), Research methodology: A Step by Step Guide for Beginners, 2nd ed, Sage Publication Ltd., (s.1.). 10. Levy, H & Sarnat, M 1970, Diversification, Portfolio Analysis and the Uneasy Case for Conglomerate Mergers, The Journal of Finance, Vol. 25, No. 4, pp. 795-802 11. Pearso, B., (1999), Successful Acquisitions of Unquoted Companies: A Practical Guide, 4th ed, University Press, Cambridge, United Kingdom. 12. Ross, S.A. Westerfield, R.W., Jaffe, J., (2004), Corporate Finance, Tata McGraw- Hill, New Delhi 13. Sloman, J., (2006), Economics, 6th ed, Pearson Education Limited, England Websites www.investopedia.com www.wikipedia.com

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