THE IMPACT OF ACQUISITION ON SHAREHOLDER WEALTH CASE STUDY OF ROYAL BANK OF SCOTLAND PAKISTAN AND FAYSAL BANK LIMITED

Abstract

This project discussed the long term financial impact of the acquisition of Pakistan operations of the Royal Bank of Scotland into the Faysal Bank Limited in 2010. The project will seek to establish whether or not the acquisition has enhanced the shareholder wealth by using four typically utilized measures of financial performance, which are, Earnings per Share (EPS), Market Value per Share (MVPS), Return on Equity (ROE) and Price-to-Earnings (P/E) Ratio. It entails ex-post facto research design, which is quantitative and, it is founded on nine years of pre-acquisition content (2002-2010) and nine years of post-acquisition (2011-2019), all of which were collected with the usage of audited financial statements. Descriptive statistics show that all the four indicators declined after the acquisition. However, the Shapiro-Wilk based normality test indicated that the data were normally distributed and paired sample t-test could be used. The results indicate that EPS (p = 0.153) and P/E Ratio (p = 0.095) did not change significantly to mean that the acquisition had not produced a significant change on the earnings performance and investor sentiments. MVPS (p = 0.034) and ROE (p = 0.046) on the other hand dropped significantly and signaled the effect of the acquisition proving to be against the market value and profitability of the bank. The outcomes indicate that the acquisition failed to generate the long term value to the shareholders, and might have translated to financial burden due to the challenges to integrate the acquired company and its restructuring costs. The conclusion of the study is that the acquisition of RBS Pakistan did not help in raise the shareholder wealth of Faysal Bank, and in general, negatively influenced the crucial financial indicators. There have been recommendations to intensify the process of integrating upon acquisition, increase the cost, interaction with the investors, audit synergy, and reassessment on the future growth plans. The restraints provide the use of secondary data and financial- indicators, which excludes the opportunities of the future work that should be oriented to the qualitative variables, comparative bank researches, and event-studies.