Industrial restructuring: the case of business mergers in Kenya

Abstract

Mergers and takeovers have continued to take place among many firms in various sectors of the Keuvan economy. The manufacturing sector is no exception to these business strategies. The main goal oj"1111.1' study was to understand the reasons for and the effects of industrial restructuring in Kenya Specifically, the study sought to identify the determinants of business mergers and takeovers in Kenya; document the existing institutional arrangements of business mergers and takeovers in Kenya; and document the effects of business mergers on firm performance in Kenya. The study found out that mergers in the Kenyan manufacturing sector lllere propelled 10 occur h)' various factors. These reasons include, desire 10 enhance the firms market position in a competitive environment; to acquire and improve technology for product development; 10 reap the benefits of economies of scale in production and distribution; to increase firm 's rate of profitability, to acquire more operating space; to increase production capacities and widen range of products; 10 benefit from sharing their synergistic strengths; and to counter the effects of cheap imports in the economy. Firm mergers have diverse effects on the performance of the new merged entity. The study findings indicate that mergers result in higher rate of profitability. average annual output levels and capacity utilization for the new merged firm. Additionally, the study reveals that mergers optimize managerial efficiency of the new merged entity. The existing institutional arrangements for mergers gravitate around the operations of the Monopolies and Price Commission (MPC) and its enforcement of the Competition law. The study found out Ihat the commission iSJ10t effectively carrying out this mandate for the smooth merger process ill the manufacturing sector and the country in general. The lack of a specified time period within which a merger has to be approved or rejected provides the loopholes that perpetuate the undercutting oftlie low by the politically correctfirms or individuals The study recommends thai there is needfor the Monopolies and Price Conunission (fYfPC) to settsitise the firms over provisions of the competition law and the mandate of the commission; the Commission to be given some powers to prosecute firms that engage in restrictive trade practices that compromise competition ethics; for all stakeholders' to actively be involved in the merger process; to amend the Competition law in order to institutionalize clear clauses and provisions with regard to international mergers; and for adoption oj' 'sun set clause' setting a period beyond which ifno response is received, 0 merger will be considered consummated even without the JvIPC officially approving it.