Africa as the Cradle of Man and his Civilization

Africa as the Cradle of Man and his Civilization


Africa has been regarded as the cradle of mankind and a place where ancient civilization was recorded long before the advancement of the human culture. Dr. Leakey, who is credited for discovering the oldest set of human bones in his excavations to unravel the origin of mankind, concluded that Africa is the place of origin to the human family. This was after he discovered the famous Lucy in his paleontological works. In addition to this, Mendel who was an expert in genes argued that the dark genes are dominant over the light genes which are recessive. To him, this meant that the African people are the most original and the ones responsible for the human race (Diop & Clarke, Para 1). This paper will provide an overview of the origin of mankind as supported by evidence from Africa and the contributions of the African culture and its astonishing accomplishments in contributing to the world civilization as it is today.

Africa as the cradle of mankind:

Africa has been regarded as the cradle of the human race based on the archaeological evidence uncovered by the paleontologists. It is believed that the Africans were the very first people to occupy the planet before migrating to other different parts of the world. Based on studies of the DNA, it is evident that the Africans are the most original people and that all the other human ancestry can trace their birth place back to Africa. Some fanatics have argued that was it not for the migratory nature of the early African man, the rest of the planet could have been characterized by the absence of human life (Rashidi, Para 1).

For a long time, Africa was overlooked in search for the cradle of mankind and Asia was thought to be the origin of mankind. This misconception can be attributed to two main reasons, one of which points to the diversity in composition of Asian population thought to be complete with the blacks, whites and yellow ethnic groups being represented. The other reason was the discovery of the Homo erectus in Asia when paleontological excavations were not rampant in Africa. The Homo erectus have however been found to be the first hominid to leave Africa, the place of their birth where they had lived approximately 1.6 million years ago. It is only about 500,000 years ago that the Homo erectus migrated to Asia having domesticated the fire and discovered rudimentary methods of transporting food and water. The Homo erectus is thought to have arrived in Europe about 400,000 years ago (Rashidi, Para 3).

In addition to Homo erectus, the Great Lakes region of East and Central Africa has been credited for having produced the first modern human populations. The Homo sapien as the hominid became known has been regarded as the earliest fossils of anatomically modern man. These fossils were discovered in Africa at Omo in Ethiopia, Border Cave in South Africa, and at Klasies River in South Africa and are believed to have existed at about 100,000 years ago. This has prompted the argument that the first modern man evolved in Africa (Jackson; John, Clarke & Rashidi p 6).

Africa as the origin of world civilization:

The Upper Nile Valley of Africa has been credited for giving rise to the world’s oldest monarchy well known as the Ta-Seti in Ethiopia. Egypt has been regarded as the greatest nation of antiquity and the Pharaoh system famously known as the ancient Kemetic civilization is thought to be the proudest and the loftiest accomplishments ever to have been witnessed in human annals (Rashidi, Para, Para 7). The great ancient civilizations in Africa had significant contributions to the world as it is today. These civilizations consisted of knowledge and wisdom that was so influential that it produced some of the leading wonders of the world and also laid down the foundations of the society as it is today. The African civilizations produced great Kings and Kingdoms like Akhenaton and the Egyptian kingdom of the Pharaohs. Akhenaton has gone down the history books as one of the world’s social reformer. He was a wonderful administrator and was even outlawed warfare as part of his administrative policies. He is said to have been so God fearing and spiritual that he would not even dare hurt a flower (Diop & Clarke, Para 5).

The contributions of the Egyptian civilization were numerous starting with the famous Pharaonic Kingdom that reached its peak in the New Kingdom era before declining after the Romans conquered Egypt in 31st BC. The success of the Egyptian civilization laid in the ability to utilize the Nile River for agricultural activities prompted by the discovery of shadoof method of irrigation. They also developed an early form of writing and had a wonderful system of administration that enhanced trade development and strengthened the Kingdom. The Egyptians also left a lasting mark in architecture and arts as evidenced by the amazing pyramids. Egypt can therefore be argued to be one of the earliest abodes of learning and civilization.

Other ancient civilizations in Africa could be found in Ethiopia in the City of Meroe. Meroe has been described as a wonderful city with “walls and stupendous gates, its gorgeous chariots and alert footmen, its inventive genius and ripe scholarship, made it the cradle of civilization and the mother of all,” (Clegg II, Para 9). It is from these ancient civilizations that the world borrowed a lot in the establishment of a civil society. The Homeric mythology has been thought to have borrowed much from the Negro hieroglyphics of Ethiopia, the Egyptians also borrowed from the Negros. The Greeks went to school in Egypt and the Romans adopted the Greek laws and war science. The west learnt from the Romans on how to build and plant, establish and maintain a government. Therefore, the civilization can be argued to have originated in Africa and subsequently spread to other parts of the world (William, p 22).


Africa occupies a very important position in the history of mankind that can not be ignored. Despite the negligence of the continent in world affairs as it is today, we need to appreciate the fact that we owe our existence to this continent. Based on the evidence, one can authoritatively argue that Africa forms the basis upon which human civilization began. The presence of archaeological evidence regarding the existence of the earliest hominids on this continent leaves no doubt about the origin of the human race. The evidence has been backed by the DNA tests to remove any queries to those who could still be in doubt about the originality of their homeland. Africa therefore is the cradle of man and his civilization.

Work Cited:

Clegg II, H. Legrand. A Brief History of Africentric Scholarship. (1997). Retrieved on 25th

January 2010 from;

Diop, Chiekh Anta & Dr. John Henrik Clarke, Africa is the Cradle of Civilization. (2006).

Retrieved on 25th January 2010 from;

Jackson, John G; John Henrik Clarke; Rukono Rashidi, Introduction to African civilizations.

(2001). New York: Citadel Press.


KEYNOTE ADDRESS FOR AFRICA DAY 2000 COMMEMORATION. (2000). Retrieved on 25th January 2010 from;

Williams, W. George. “History of the Negro race in America: from 1619 to 1880,” (1989). New

York, G.P. Putnam & Sons,

Friendships End

Friendships End

Me and Mark have always been best buddies, friends since the sand box so they say. We’ve done everything together, we’ve gone to the same school for 7 years, our parents are friends with his father being a construction worker and my dad being his direct supervisor. So if they go out on double dates I usually go over to his house and play with him on his ps3, talk about life in general, about friends, about our little business selling games at school he had finished and how we would create our own gaming company. It was a great setting, a wonderful friendship and I was so wrong…

Hanging out with him one day at Debenhams department store during a particularly cold and boring winter he asked me to come with him to the gaming section at the back near the summer clothes section. Not that many people were there. Probably due to a combination of the harsh weather and the fact that no one in their right mind would try on a bathing suit in that icebox of a department store. He was looking at the latest winter game to hit the shelves I commented that he should buy it since he was waiting weeks for it, he said he just might. I strolled on over to check out the other games for sale when I noticed that the hook holding the game Mark was holding was empty, at the time I thought that he was going to buy the game and thought nothing of it. Strangely though I noticed more and more empty hooks the longer I stayed there and Mark seemed a bit strange, a bit edgy actually. Constantly looking over his should at the counter at the back. Then I saw it, while I was looking at some games around the corner I saw him, take a game off a hook, look around then stuff it inside his jacket. Surprised was an understatement for what I was feeling then and there. I’ve always wondered why he had so many games when his dad was just a construction worker and how come he had a ps3 when it was so expensive. Then it hit me. All the games we’ve been selling at school were stolen! The ps3 was probably bought with the money from all those stolen games and I had helped! I was about to confront Mark when two guys in security guard uniforms came up from behind him, held his arms and opened his jacket. Game containers clattered on the floor with Mark having a shocked, wide eyed and fearful look etched on his face. I would later find out that the store had set up surveillance cameras in that section since they noticed a lot of thefts occurring in that particular section. As they were dragging him to the security desk, with tears streaming down his face, they came across the spot where I was literally frozen. They asked me if I knew him, if I knew my friend of several years, my friend from the sandbox. The guy I played around with at his house, who I dreamt of building a company with. Slowly but surely my head turned left then right then left again with Mark just staring at me with tears streaming down his face and me with nothing but a blank expression. Then they took him away. I haven’t talked to Mark since. Its been years, and he’s still living right across the street from me, we haven’t said a single word to each other since that incident. I sometimes wonder to myself that if I had noticed sooner could I have done something about it.

Maybe, however that’s all in the past. Best to forget about such things. Sometimes people dig their own graves I was just lucky that I didn’t dig my own right beside him.

Regret and Elation Following Action and Inaction: Affective Responses to Positive Versus Negative Outcomes


The perception of the problem of proximity is what matters to us, humans. If something almost hurts us , or it is prevented or damage of any sort is eliminated, or if that is something they want but they do not tend to react more forcefully to buy than if the damage is unavoidable, or if any injury occurs, or if you forget to get what they want. In his research, checked on decisions under uncertainty, Kahneman and Tversky (1982a), whether the same negative result, there is no difference in the experience of pain, depending on the outcome of the act or omission. Near Miss experience can be painful, but educational institutions are suffering at the same time, stirring behavioral adaptations of those who do. By repeating the experience of Vignette, the earlier discovery of a strong tendency for a cost of several proposals, after the failure. The same tendency was for the pleasure experienced positive results.

This study is a partial replication of Landmans (1987) which investigated Regret and Elation Following Action and Inaction: Affective Responses to Positive Versus Negative Outcomes. The main hypothesis is “People imagine greater regret over unhappy life events following action than following failure to act. Similarly, people imagine greater joy over happy events following action than following failure to act. This study endeavors to test the validity of this hypothesis as well comparing regret and elation responses with regards to action vs. inaction.”

This study is partly a copy of “Landmans (1987) “, the sorrow and joy following action and inaction: Affective responses to positive results, compared with a negative balance were examined. The central hypothesis is” People think that the deplore the unfortunate events in life after surgery, not to act. In the same way that people think of great joy for the happy reaction inactivity. The study aims to approximate the validity of testing these assumptions and compare the reactions of pain and joy with each other to act in the form of action. ”
We note that the relationship is between the kind of repentance and self-regret, that is typical feature of the participants recalled an act or omission regrets systematically deviates from the Association of distortions due to availability. The self-description, followed by the memory of an unfortunate event, and the classification of sadness that an act or omission. Write or think of a complaint and use the incident as an act or omission classified, the participants are willing to consider someone who often complain of this type. Our experience in other contains checks to prevent this alternative explanation.
The word “abnormal” is used here without the connotation of psychopathology. In other words, in technical terms, it is unusual for the morning, brush your teeth when you brush your teeth more often during the night.

Landman. (personal communication) shows that it is regrettable that it presents examples of the participants presented a confusion of the experimental design was. Although buying a share of the value drops to ensure a loss, rising despite the impossibility of a file, its value, even if you missed the opportunity to buy or lack of profits. Could not possibly win the difference between an example of a loss, and an example due to differences in the intensity of the action and inaction regrets to remind the participants? In response to the first note is confusing for measures to increase the intensity of regrets, regrets the lack of work because they say such a loss as a result of intense regret that the example of the lack of profit due to inactivity. If this confusion is the effect on our data shows that the effects of the measures are unjustified, less than the observed effects and consequences of inaction does not justify larger than the observed effect. In other words, claiming that it did not support the false claim that the measure is more regret than inaction, that they sought to refute. Given that our data is a pity no difference between the intensity of the natural production of the action taken or not proven we can conclude that if it affects our data can be confusing, since the law of the state n ‘regret regret nothing, not even when intensive it shows the strong rejection of the application which is more action than inaction regrets. The literature shows that the loss of favorable result in changes in the absolute value is greater than objectively equivalent transactions (Kahneman and Tversky, 1991), but not for the fact that an unspecified losses in the volume of withdrawal leads to a deeper, unfortunately, was not the lack of more than words, from an undisclosed sum. It is not clear that the different intensities through the entrance to the loss of an unfortunate designated unspecified collected, not to win as a possible example of repentance. In fact, we are very skeptical that this could happen, and it is an empirical question in a follow-up study. Here is our starting point, that although this impact has occurred, so that a denial of the higher requirements that measures to create more than a sedentary regret.
The gap between the two, since the 29 messages that were anything other programmers and participants. Without attempting to describe these differences in detail, we note that the 11 comments that have been included as participants and actions, such as encoders, blocked an average of 4.18 and 8 observations are not encoded as – efforts of the participants and the actions the programmers had a average of 5.75. Since 4.18 is less than the average effort and the participants were higher than the 5.75 average non-participant for the reclassification of these comments and a failure to act, or to increase the difference between action and inaction in the media.
Classification of coders, data were excluded if (a) of the participants, although the intensity of the first or second (usually unintentionally), or (b) if programmers split on the issue of classification of first or second boring or (c) if a programmer had remorse inappropriate experimental conditions, such as programmers who are classified as a sad failure, however, regretted that for the first time in Retiro Condition 2 (first step to apologize for calling). The data were excluded from the classification of the participants that if the data is not the first criterion (a). Despite differences in sampling criteria were the consequences of an act or omission by the distinctive, almost identical to a participant or classification Encoder “everything. Feelings of guilt and grief are very powerful and often misunderstood. Debt is a feeling that occurs when someone felt he had done nothing wrong. Repentance is the willingness to change something that has already occurred.


Unfortunate effect of “action”, which produce more action than inaction, it is found to disappear from the model in question. This phenomenon occurs in the first study. It has been suggested that this disappearance is due to inability to understand the extent, despite differences in regret when the perception among individuals design used to be a problem highlighted by another study. A proposal for a new approach, with the common method to solve this problem. This method shows a study of the third and fourth, and discussed the conditions for these improvements.
Previous studies have shown that when they issued until all desired options consumers are more satisfied with their own choice options for alternatives abroad, but it is just the opposite, if the options are undesirable. This investment in satisfaction is explained by an emotional account of: Choose large commitment to the importance of emotional experience with the result of extreme than non-voters (Botti and Iyengar, 2004).
In the present study the hypothesis of the reinforcing effect on the satisfaction of the election of the ability of voters to distinguish between choice moderated: if fewer opportunities, such as
compared with the more nuanced decisions would be equally happy with the out-as he put it with a self-selected options. This forecast is based on confusion between the effects of decisions and responsibility in the above results. Research has shown that when people feel that it is the result of the emotional experience of this is multiplied by itself a credit card or a nice feeling of guilt for an unpleasant experience (Gilovich, Medvec, and Chen 1995 Kahneman and Tversky 1982, Landman 1987, Ritov and Baron, 1992, Weiner 1981). Therefore, the assumption that if it weakens the notion of responsibility, selectors would have less reason to congratulate or
themselves to blame, not what you choose a smaller difference between sitting and then.
Based on earlier studies that exercise the option is deeper in the absence of a clearly dominant choice (Dhar 1997 Shafir, Simonson and Tversky, 1993), we process personal responsibility for change in the extent to which decision makers identify the opportunities and most people prefer to distinguish itself: If the data do not exclude the diagnosis to identify the relative quality of each opportunity, the opportunity to choose the lesser noted that although differences between the options that are easy to voters a sense of understanding of accountability for results and influence the gap between voters and non-voters are given. But in line with previous studies showing that this approach is not sensitive to the choice of the same factors that influence satisfaction (Botti and Iyengar, 2004) argues that the will to choose, not by creating differentiability changed.
As expected, gives a measure (and) with a hard power), with a focus on design (both the status of agents. Contrary to expectations, we have a marginal effect meaningful measures of a pattern between individuals, but also the fact that only marginally significant in form of a smaller, much smaller than you is an internal affair
Design. This reaction, and usually N’gbala (1997 Branscombe’s) Wnding. The effect of the measure seems to disappear, with between subjects design. Two hypotheses are possible at this time. Could it be that the regret is essentially the same for the actor and the actor is not (as it seems between-subjects) design, and this small difference is exaggerated in style to substance. But as we show in the next section, it is possible that the direct use of renewable wave in a between-subjects design is a useful tool to examine differences in anger.
Ideally, we rely on the ratings of the stimuli evaluated, not the person performing the examination or assessment. We want to shared values. The depth of the introduction of a person on a scale of 0-8 digit meter measurements: Although the evaluation is always the same score. You can stand beside Michael Jordan and has the same score. But it is true that the scale of 0-8 meters with a 11-point scale from very short to be replaced very high? Each court has its own idea of what it means to “very shortly” and his own interpretation of the amount corresponding to the third point of the scale or the sixth.

uncle silas wants to move away from farming since the work is too much for him now.Explain the anatomy of the computer and give him some ideas about developing some work which might bring him an income usingcomputers.

Uncle Silas wants to move away from farming since the work is too much for him now. Explain the anatomy of the computer and give him some ideas about developing some work which might bring him an income using computers. You will need to give him some kind of

Uncle Silas is a farmer, and 46 years old, the time when most of the people of his age and trade work double the time, make it large, and make some more money than others. But uncle Silas feels heavy on him to run his farm, the way he has done it for years. Unlike the mass at large in the farmers’ community, uncle has a large farm divided in two distinct categories, crop and dairy, inside his single large boundary of farm yard. This paper is not about a discussion on uncle Silas’ putting off the farming job due to the mounting burden, but about giving a solution, which many farmers do not think of, or have not been able to cope up with the cultural shift in the work environment. An inside coupled with ideas have been put forward to uncle Silas; to him bring an income in his life, using the computer.

An anatomy of the new introduction has been provided to uncle to develop a clear conception about the computerization of his farming activities, away from his tradition method, now which has become too much for him. This way he will get a good hang of the computer applications towards his manually driven farming activities. As he started this business in the childhood with his father, his veteran status expects an exceptional usage of the combination given, which infact, is the concern of this project.

II. Background: Factors of Computer Usage: Computers have hit the agriculture back in 1987. A successful Farming survey during the time, found out that 21% of the farmers were owners, leased holders, or sharing a computer for their farming activities. There was a segment of 24%, who planned to by their computers during the next three years. During early 90s’, the University of Wisconsin-Madison conducted another Farming survey for several months in south-central Wisconsin and north-east Kansas, interviewing and spending time with 18 farmers, lastly to discover that of the farmers contacted only 11 owned computers, and seven without any accessibility. The statistics show a negligible shit of little more than just 50%, to the pro-computerized farming technology. This reflects the clear and obvious complications and lack of instructional designing to break the age-old hitches of the manual workers. In the stint of this consultancy, uncle Silas will be kept abreast of the factors that influence the buying behaviour of the farmer community that has been cut alone by the software and hardware agents. Given below are the concerns discussed to understand the operational value of computer in his farm, and how he will upgrade his functional ability, from the entrepreneurship stand-point.

  1. Complexity of Farm: Like many other farmers, this factor has bothers uncle Silas too, and had left him clueless for quite a long time. But, to logisize the issue, the factor has been dissected into two aspects, which generally fires the hesitation with its contradictory central points, unless one does not receives the proper resources. When the size of the farm is big, its operation system remains complicated. There arises the need of data storage and retrieval system to speed up the operational flow and a seemless database management. Here, computer plays a big role; as uncle Silas has big farm comprising two different categories. Thus, it is obvious that adoption of computerization will shred manual burden from his shoulder. The other aspect that contradicts the given justification is the picture of complicacy and the time factor to enter the data into the system. The idea of complex database and spreadsheet made it worst, where uncle perceived the burn of the cost than the benefits. But, now he has a clear mind for he has the resources that there are data management farms or service farms that manage the entire, update, maintain and help in troubleshooting on the run. As these services were alien to him, the entire concept appeared to be a puzzle maze.
  2. Degree of External Support: As uncle Silas is inclining towards computer to earn his living, the other old timers in the farm still expressed their wonder about degree of credence of this system, worthy enough to adopt. This is a typical problem of ignorance about the extended external support the farmers are getting in the countries, where computer has hit agriculture. In the United States for instance, The Dairy Herd Improvement Association keeps up-to-date records of the dairy farms, and Kansas State University tenders the computerized accounting printouts through a farm management service. Moreover, there are several banks those offer the financial record keeping, a major part of the data entry and the so-called complicated spreadsheets. Agronomists are there to feed the system with crop records, veterinarians record herd information, and accountants store tax records. Over this, many farmers have subscribed the terminal that displays the minute details of the market and advice. These services are in full strength, where uncle Silas lives. So, it is all about the initial paper works of the service contracts and subscriptions that can make uncle the overseer and decision maker of the farm any where, any time, just with click of the mouse.
  3. Age: The age factor has its unique excuse that one can not teach an old dog, a new trick. Few weeks back, this was the mouth-piece of uncle Silas too, in his excuse list. Research has showed that the older farmers, who were working on computer, have given these same excuses, even when they were in their 30s. So, there is nothing new about it, except the new learning methods that demonstrate the system as the solution of issues that concern them most. This is the administrative aid a computer can give to run the farm management, which will make uncle’s farm work more articulated and hassle-free.
  4. Network and Availability of Information: This informational factor is individual in nature and uncle Silas needs to comprehend it in his own way. As, each farm is unique, and have different needs, uncle Silas should follow his own way of learning; the usage of computer in his farm. He can form a network of other computer using farmers to use their combined data extensively as, what matters in the real time usage is the availability of resources to the users. He can even take help of the software support centers, where help is readily available, on the issues related to software, hardware, interface, etc. The networking factor can go to the level of tacking the information of drought or rainfall in different regions through the agricultural software, with the additional description. Knowledge about these things will make it easy for uncle Silas to approach the support providers for solutions (Iddings 1990).

III. Anatomy of Computerized Farming: Uncle Silas can move away from the farming job and can be the entrepreneur, using the enterprising structure of the farm, which he had built up through out his career. Infact, in a survey conducted in New Zealand 98% of participant opined a place for computer in farming. 50% of the farmer category admitted the scope of computer as the income source of agricultural income. All these figures display the developmental stage of this revolutionary shift, a creation of job market as-a-whole. Thus, this is a good time for uncle to start with the concept of computing to generate income from his farm as the available resource business overhead. To perform with this device, he should know the dissection of the same.

  1. Current Software Usage: As per DPI, in Queensland this publishes an Inventory of Agricultural Software in Australia and New Zealand, which recommends the three main software packages, like financial and physical records and the decision making areas. The Australian Farm Management Society survey further clarified that any farmer, who own computer uses it for cash book recording, budgeting and planning and for writing letters. Very few were using their computers for recording physical records. For the last said job, they rely on their staffs.
  2. Current Hardware Usage: About the software issue of the computer anatomy, uncle Silas should know and keep mind that the modern up market computers are costly are not user friendly for the farmers as per their technology literacy. It is suggested that he should negotiate an IBM clone machine, which is much user friendly that the Apple Macintosh type. He should choose a machine with of larger memory and hard disc capacity to install the agricultural packages to run his farming turned business. Avoid Apple; it does not support this configuration (Farrer Centre 2005; Batte 2005).

Uncle Silas can use the computer software and hardware to effectively manage his farm and other rural business, using three typical softwares designed for farm like his. These are Financial Management, Livestock Management and Crop Management. Further the range covers, finance, livestock, crops, and single payment scheme and property management. Now, hardware is the system structure that holds the farm and rural business records and meet legislative, cross compliance and performance management requirements. Uncle Silas is advised to check list the service range of the hardware products, which should include sales, installation, support on desktops, laptops, networks, peripherals, email addresses and anti virus (Farmplan 2009).

Using the resources from ICT computer specialist of agriculture in Africa, uncle can rely on the computer technology to draw information on pluviometry (branch of meteorology dealing with measurement of precipitation, e.g. rain), keeping himself well aware of when to sow the crops. Computer in agriculture can also trace the available pasture and water point to graze the cattle, supporting the farmers to navigate the livestock or dairy farmer in case of uncle Silas. In a manner like this, uncle can get involved in the out-door activities of computer farming (African Agriculture 2007).

Gradually, gathering more resources, uncle silas can be more professional to increase the revenue and reduce the cost of his farming activity by using the advanced computer-mapping technologies using Global Positioning System (GPS) and Geographic Information System (GIS), to identify suitable crops by location and season, optimize fertilizer and pesticide quantities, accurately project the yield of a particular crop. A business projection is possible with the use of computer. The GIS uses computerised maps to combine, analyse and display critical information while GPS is for satellite-assisted, remote-sensing data collection to perform the precision farming. These are the tools that display the detailed crop data and factors which may affect crop yield. Farms in the US, Europe and India are actively using computer-mapping technologies to source the most vital information. Thus a global network support can be built by uncle, to keep the flow the business steady (GIS Development 2009; Mather 2004).


Iddings RK & Apps, JW 1990, ‘What Influences Farmers’ Computer Use?’, Journal of Extension, viewed 27 August 2009, <;.

Farrer Centre 2005, COMPUTER TECHNOLOGY IN FARMING, The Regional Institute Ltd., Gosford, viewed 27 August 2009, <;.

Farmplan 2009, The essential tools for successful farm management, Reed Business Information, viewed 27 August 2009, <;.

African Agriculture 2007, ICT can improve African farming: computer scientist, viewed 27 August 2009, <;.

GIS Development 2009, Computer-mapping in agriculture world, viewed 27 August 2009, <;.

Mather, BC 2004, Wireless Networking for Farmers, CBS News, viewed 27 August 2009, <;.

Batte, MT 2005, ‘Changing computer use in agriculture: evidence from Ohio’, Computers and Electronics in Agriculture, vol. 47, no. 1, pp. 1-13.

Mergers and Acquisition as a means of creating shareholders wealth. A case of Lloyds TSB And Hbos.


The assessment of shareholders’ wealth effects (value creation or destruction) of Mergers and Acquisition (M&As) is one of the most researched area in the field of finance. This dissertation is also an attempt to understand the wealth effects of M&A through the case of Lloyds TSB acquisition of HBOS. The primary objective of this dissertation is to study and analyze the acquisition of HBOS by Llyods TBS and to investigate whether this acquisition has created wealth for its shareholders.

The wealth creation or destruction for shareholders was investigated by examining the daily excess returns that accrue to the shareholders around the date of announcement of the merger deal. The study shows huge positive excess returns for the shareholders of both firms around the announcement date. The results were unlike the results obtained by the other researchers and one of the possible reasons of this kind of result can be found in the external economic conditions prevailing in the market.

Table of Content

Chapter 1: Introduction

    1. Introduction:

The assessment of shareholders’ wealth effects (value creation or destruction) of Mergers and Acquisition (M&As) is one of the most researched area in the field of finance. Neo-classical economic theory assumes that corporate management acts to maximize the wealth of shareholders. Takeovers are seen as devices by which inefficient management teams may be replaced (Manne, 1965) and which facilitate the redeployment of capital to more efficient users (Weston, 66-80). Therefore, if companies follow the policies of shareholders’ wealth maximization then shareholders should not suffer wealth destruction in the process of acquiring a target firm. At the same time current competitive environment forces the bidder companies to raise the premiums paid to the target companies and let the shareholders of the target companies earn positive and significant abnormal returns in the few days. In such conditions the merger and acquisition process may be viewed as zero net present value investment decision (Limmack, 1991).

However, it has also been argued that shareholders’ wealth creation or destruction in an acquisition is contingent on the economic conditions of the period in which acquisition takes place. That is, wealth effects to the shareholders are sensitive to economic cycle (Tse & Soufani, 2001).

In recent years, the changed economic conditions due to the unprecedented turbulence in the global financial markets have given opportunity to stronger firms to increase their horizons by acquiring the firms which could not endure the brunt of the crisis.

One such a case is the acquisition of HBOS by Lloyds TSB. Lloyds TSB believes that the acquisition of HBOS will create a compelling business combination offering substantial benefits. The enlarged group will have excellent breadth and balance with strong positions in retail, corporate banking, SME business banking and long term savings.

    1. Aims and Objectives

The primary objective of this dissertation is to study and analyze the acquisition of HBOS by Llyods TBS and to investigate whether this acquisition has created wealth for its shareholders. Another purpose of this analysis is to investigate whether merger and acquisition process are efficient strategies in volatile market situations.

    1. Hypotheses

To attain the aforementioned objective the following two hypotheses will be tested:

Hypothesis 1:

H1: Whether positive or negative cumulative returns accrued to Llyods TBS (bidder) or HBOS (target) shareholders and the reasons thereof.

Hypothesis 2:

H2: Whether there is zero or negative combined excess return in the merged firm (Llyods TBS and HBOS combined) and the reasons thereof.

    1. Data and Methodology

Typically, the shareholder gains from acquisition are estimated by comparing the “abnormal” returns to the shareholder arising from the acquisition and the normal returns from ownership of the stock. A fairly standard and sophisticated methodology has been developed for this purpose (based on the well-known capital asset pricing model).

In order to test the hypotheses the returns to Llyods TBS and HBOS are calculated before and after the announcement dates. By investigating these returns the announcement effects on both the companies’ share prices are analyzed.

The study deduced the market performance by taking the FTSE 100 Index as the market benchmark. The study involved the use of 200 days share prices of both the companies and the market. The detailed description of data and methodology has been given in the Chapter 4 of the dissertation.

    1. Summary of the Dissertation

The remainder of the dissertation is organized as follows: Selected literature on wealth effects is described in the next chapter. Chapter 3 deals with the details of the acquisition of HBOS by Llyods TBS. In Chapter 4, we explain the detailed methodology of the research and empirical analysis. The final Chapter provides some concluding remarks about the research.

Chapter 2: Literature Review

    1. Introduction

This chapter deals with the literature review of the previous studies and researches done about the wealth maximization of shareholders of acquirer and target firms. The literature review captures the researches involving various countries and broad time period. Since this dissertation is about the companies present in U.K. so, some of the literature reviews done from the perspective of U.K. are also analyzed. Similarly, few researches exclusively dealing with the banks mergers and acquisition are also covered.

    1. Literature Review

General M&As:

The issue of shareholders’ wealth maximization through mergers and acquisition process is one of the most controversial issues in financial research world and plethora of research papers have been exclusively devoted to this issue. Several studies have reported that there shareholders of acquiring firm get benefitted by the acquisition process while at the same time others report losses to them. Empirically, both camps have found some support for their arguments. Researches such as Franks et al. (1977), (1989), Firth (1979), Asquith (1983), Jensen et al. (1983), Jarrel et al. (1988) etc. revealed that target firm gain from the takeover process. The reason for the gain is explained in the high premiums paid by bidding firms to the target firms. Other researches such as Frank et al. (1977), Datta et al. (1992) etc. indicate gains for the bidding firms too however others such as Firth (1979), Asquith (1983), Limmack (1991), Sudarsanam et al. (1996) etc. report zero or negative gain for the bidding firms.

Weidenbaum et al. (1987) analyzed ten takeovers studies which report cumulative average abnormal returns to acquiring firm shareholders over three separate event periods. They found that only two of the studies show significantly positive returns around the date of the announcement; four report insignificant gains or losses during that limited time period, and three report significant decreases in the returns to bidding companies. Of even greater interest is the fact that nine of the ten studies go on to report losses in shareholder returns during the period following the announcement of the merger. Using the same methodologies they concluded that the significant negative cumulative abnormal returns due to acquisition indicate that the acquisitions are, on average, a poor investment for acquiring firms (Weidenbaum & Vogt, 1987).

Mishra et al. (2005) say that on an average, a merger is not a wealth creating exercise but transfers wealth from bidders to target shareholders (Mishra & Goel, 2005). Many other studies conclude that the target company’s stock price on an average tends to go up from 10 days before the announcement to 10 days after. Mandelkar relates these positive excess returns of the target shareholders to the ‘unique resources’ held by the target firm in a given perfectly competitive acquisition market. He argues that if the takeover takes place in a perfectly competitive market, acquisition will result in zero net present value projects. That is, the expected return from an acquisition will be the same as from any other investment production activity with similar risk. The bidding firm will experience no excess stock returns. However, if the target firm has some unique resources, it will earn positive excess return while the bidder firm will earn normal return i.e. no excess return (Mandelker).

Various other studies segregate the examination of the abnormal returns into friendly and hostile bids. In both of these cases, the target shareholders gain due to acquisition premiums. Hostile transactions usually elicit higher offer prices as a result of `aggressive negotiation’ between the management of the two firms (Tse & Soufani, 2001). Huang et al. (1987) postulate that the returns surrounding the announcement of hostile takeovers differ from those surrounding friendly ones. Their findings exhibited an average return of 28.3 and 22.6%, respectively (Huang & Walkling, 1987).

M&As in Banking Industry:

Early event studies revealed some variation in the abnormal returns to the merging parties. However, as in the case of any other merging activity, there is a general consensus over the point that acquiring banks suffer losses and destroy the shareholders’ wealth in an acquisition activity.

Chavaltanpipat et al. (1999) used ordinary least square technique to investigate the abnormal gains to both target and bidding firms. They analyzed 30 mergers happened from 1980-1993 and found that in 18 acquisitions bidder experienced negative abnormal returns and the target gained positive abnormal returns, in six acquisitions both bidding and target banks experienced abnormal returns, in four acquisitions both bidding and target banks experienced negative abnormal returns and finally in only two acquisitions bidding banks experienced gained positive returns while target experienced negative abnormal returns (Chavaltanpipat, Kholdy, & Sohrabian, 1999).

The similar conclusions were reported by Nail et al. (2005) in their report analyzing various cross border and domestic (U.S.) banks’ mergers activities.

More recent empirical studies indicate that the changing regulatory landscape has altered the degree and distribution of stockholder wealth changes in bank mergers. Researches by Becher et al. (2000) and James et al. (2001) show that the capital markets have become more approving of bank mergers as they relate to the acquiring firm’s stock. Both studies find that acquirers’ returns were not only higher in the 1990s than in prior years, but they also became positive.

    1. Conclusion

In this chapter we analyzed various previous studies and researches investigating the effects mergers and acquisitions activities on both acquiring and target firms. From the literature review we can conclude that there is a general consensus emerging out of the research analysis that in any acquisition target firm (Be it a bank or any other firm) always seems to experience abnormal returns due to competitive bids by many bidders resulting in high premiums paid to target firms’ shareholders. However, researchers are inconclusive about the target firms’ shareholders’ wealth creation. Some empirical analysis report positive abnormal return while others report negative abnormal returns.

Chapter 3: Lloyds TSB’s Acquisition of HBOS

    1. Introduction

This chapter provides information about the acquisition of HBOS by Lloyds TSB. It includes the background which led to this acquisition, the rationale behind the deal, the merger terms and conditions, and finally It also throw some light on benefits for both the firms out of this deal.

    1. Acquisition Background

The financial meltdown which started from the U.S. mortgage sector spread across the industries and across the geographical area. The primary reason of the meltdown was credit crunch which directly affected the banking and insurance industry. The U.K. banking and insurance industry was not exception too, the global crisis hit the U.K.’s banking and insurance industry in 2007.

HBOS was a diversified financial services group, fourth biggest in U.K., engaged in a range of banking, insurance broking, financial services, and finance-related activities throughout the UK, the State and elsewhere in the world. While, Lloyds TSB, fifth biggest in U.K., provided banking and financial services in the UK, the State and elsewhere in the world. Lloyds TSB activities are organized into three divisions: UK Retail Banking; Insurance and Investments; and, Wholesale and International Banking (Wong, 2008). Even these two behemoths could not bear the brunt of the crisis.

However, the stepping stones for this deal were set at the start of the crisis but the acquisition became the only option of survival for the HBOS in the beginning of March 2008 when rumors spread that it had asked the bank of England for emergency funding. This resulted in 17 percent share price fall of HBOS in just one trading day. Aside from Northern Rock, HBOS was one of the U.K. banks most reliant on lending markets, rather than customer deposits, to fund its mortgage-lending business. In the summer 2008, in an effort to shore up its finances, HBOS raised £4 billion from investment banks and existing shareholders. It had tried to raise the funds from shareholders alone, but demand wasn’t sufficient. HBOS lost almost half its market value last week, after being badly hit by a shortage of funds to back its mortgages. The company was left in a similar situation to that of Northern Rock. On 17th September 2008, very shortly after the Lehman Brothers collapse, HBOS’s share price suffered huge fluctuation ranging from 88p to 220p per share. The Financial Service Authority (FSA) tried to minimize the uncertainty spread in the market by assuring about HBOS’s liquidity and financial conditions. There were growing concerns in the HBOS boardroom that a climate of fear was being created about its future that could have led to a funding crisis, or a Northern Rock-style run – on steroids. Later on that day BBC reported that HBOS had finalized a deal with Lloyds TSB (Lloyds TSB seals £12bn HBOS deal , 2008). Finally, the deal was concluded on January 19, 2009.

    1. Terms and Conditions

The deal was negotiated at the very highest level, it is said that Prime Minister Gordon Brown himself finalized the deal between the two. He also assured that since the acquisition is done at unprecedented conditions therefore, this deal can get green signal from the competition authority to overrule the antitrust law.

The final terms were negotiated as; HBOS shareholders to receive 0.83 Lloyds TSB share for each share they own. The offer valued HBOS at £12.2 billion ($22.2 billion), based on Lloyds’ closing share price on Sept. 17(232p). The price of each share valued at 232p was 58 percent more than midweek’s closing price of 147.1 in London trading.

There were three main conditions for the acquisitions as following:

  • Three Quarters of HBOS shareholders voted in agreement with the board’s actions
  • Half Of Lloyds TSB shareholder voted to approve the takeover
  • UK government dispensation with respect to competition law.
    1. Rationale Behind the Acquisition

Although, this deal was driven by the global crisis and there was no option left with the HBOS except to be merged with Lloyds TSB, but as it is said that the objective of any firm is to maximize the shareholders’ wealth and hence Lloyds TSB had to go with the deal only if it could have helped it in making the shareholders’ money grow. Followings are some of the motives for the Lloyds that could have attracted it to acquire HBOS.

Business Sustainability:

Exhibit 1 displays some of the facts about the two giants at the time of announcement. Together, the banks had 142,000 employees, 2,800 branches and 38million customers. The merged super-bank would dominate the markets for retail banking and mortgages, with close to 30% of both. The combined bank is to be by far the U.K.’s biggest mortgage lender, with more than £1 trillion ($1.783 trillion) in assets and nearly a third of the mortgage and retail deposit markets. It would also be the biggest player in life insurance with around 18% of the market (Lloyds TSB and HBOS: Monster mash , 2008).

Exhibit 1: Lloyds TSB vs HBOS
Branches 1900 1100
Customers 16 million 22 million
Employees 70000 72000
Savings UK’s fourth largest savings provider The market leader
Retail Saving Balances £65bn £139bn

In normal times, creating such a monster would have been impossible; indeed, Lloyds TSB was turned down in 2001 when it sought to take over Abbey National, a bank.

IT Savings:

In the acquisition agreement the banks said to derive cost savings by integrating the technology of both the banks, removing duplication of systems. They emphasized on significant cost savings by combining back offices of both the banks. The takeover would result in “cost synergies” of over £1 billion by 2011, it stated, or about 10 per cent of the combined cost base. Single dealing and trading platform through wholesale division can result in more savings.

The merged bank will also shave costs from its operations by use ‘straight-through-processing’ technology, centralizing its back-office operations and offshoring jobs. Lloyds TSB already offshores most of its IT functions, with 30 per cent of its IT jobs based in the UK (Staff, 2008).

    1. Conclusion

In this chapter we explained about the economic conditions which forced HBOS to seek shelter under the arms of government and Lloyds TSB. The deal turned to be boon for both the companies at one side Lloyd TSB acquired a firm which was leader in its industry and on the other side HBOS got a helping hand which could bring it out of the credit crisis. Apart from these short term benefits the merger can be a long term boon for both the firms in term financial and business sustainability and cost savings through synergies.

Chapter 4: Analysis

    1. Introduction

This chapter extensively deals with the methodology and analysis empirical results part of the dissertation. We have explained about the data used in analysis and the methodology we used for the analysis. We have also clarified various terms used in the methodology purpose. Finally, the empirical analysis is done from the perspective of both firms; the bidding and the target firm. The empirical analysis centers about investigation of existence of abnormal returns for the shareholders around the date of acquisition.

    1. Data

In order to test the hypotheses the study we require announcement date, excess shareholder returns, cumulative excess returns and excess returns of combined firm. These terms are explained in the methodology part.

To calculate the above values the time period from November 1, 2007 to October 16, 2008 is used. The values of daily share prices of HBOS and Lloyd TSB are taken from the website

The FTSE 100 Index is used as the market benchmark and its daily values are taken from the website

    1. Methodology

As mentioned above to carry out the analysis announcement date, excess shareholder returns, cumulative excess returns and excess returns of combined firm are required. These terms and method to calculate them are explained below:

Announcement Date (t=0):

It is the date on which the information about a merger bid first appeared in the financial dailies. Keeping t=0 as the date of announcement of merger, date t = (-1) represents a day before the merger and the day t = (+1) represents the day after the merger. In this case, Lloyd TSB announced its plan to merge with HBOS on September 18, 2008. However, a day before on September 17, 2008 BBC reported the takeover deal. But the deal was formally announced on the September 18, 2008. Hence September 18, 2008 is taken as t=0 in this study.

Excess Shareholder Return:

It measures the stock market’s initial reaction to a merger bid and division of any gains from any new information which becomes available to the market. Daily share price changes were tracked to compute daily excess returns (XRit) for the security i as on a particular day (t) by employing market model (1):

XRit = Rit – E (Rit) (1)


t = day measured relative to an event, XRit = excess return on security i for day t,

Rit = return on security i during t, E (Rit) = expected rate of return on security i that it would ordinarily earn for a given level of market performance for day t. This is measured using the market model denoted by the equation (2):

E(Rit) = αi + βiRmt (2)

The study deduced the market performance by taking the FTSE 100 Index as the market benchmark. Values of α and β were estimated by regressing Rit (dependent variable) on Rmt (independent variable) for the 206 day period ranging from the period November 1, 2007 to August 19, 2008. The period of 20 days prior to the announcement was excluded from the estimation period to ensure that the parameter estimates were not contaminated with the announcement of the merger process. Market model parameters were calculated based on these 206 data points.

Cumulative Excess Returns (CER):

CER in the days surrounding the merger (equation 3) were needed to examine whether shareholders of merging firms gained from the merger.

CER = XRit (3)

Where, CER is the cumulated excess return from day –K through day T.

Excess Returns of the Combined Firm:

Excess returns of the combined firm (equation 4) were calculated for assessing the market expectations from the merger of the two companies. It is a weighted sum of bidder and target firms’ excess return.

XR(bt, t) = [XR(b,t) * MVb + XR(t,t) * MVt] / [MVb + MVt] (4)

Where, MVb and MVt are market values (i.e. market capitalization) of the bidder and target respectively as at the day before the announcement date (t=-1).

XR(b,t) is the excess returns of bidder firm as on day t and XR(t,t) is the excess return of the target firm as on day t.

    1. Empirical Results

Returns to the Bidder Firm Lloyds TSB and Target Firm HBOS:

The following Exhibit 1 presents the Cumulative Excess Returns (CER) of Lloyds TSB and HBOS accumulated according to equation number (3) for the period (-20 to +20), i.e. from 20 days before the merger and 20 days after the merger. From the exhibit it is clear that the entire time window is displaying higher positive CERs for Lloyds TSB with the mean of 256.15%. In relative terms CER has continuously rose for the whole time line. Till the date of announcement it grew to 252.34% and from the date of merger (t = 0) to next 20 days it grew by 238.86%. This result is ironic to business as usual situation. Normally, the bidding firm’s cumulative excess returns decline from 20 days prior to the merger announcement (t = -20) to the date of announcement (t =0). Unusually, on the date of announcement Lloyds’s excess return is -1.89%, signifying that shareholders did not expect benefits from the mergers, however, just days before the announcement date the excess returns are as much as 19.66% (t = -2), 15.66% (t = -1). This kind of return behavior might be due to shareholders got information about the deal much prior to the announcement. There are few proofs of this information leak as, just before the announcement date BBC reported about the deal finalization. Another possible reason for this unexpected price behavior is the after effects of the global slowdown which was at peak at that time. At the time of the deal U.K. banking sector was collapsed and the merger was one of the rescue measures arranged by the government of U.K. with the help of other players. At that time the prices of almost all the shares were touching the rock bottom and just few days after the merger announcement, the government of U.K. announced the £37 billion of treasury investment for the banking sector. Shareholders might have anticipated this long awaited rescue package for the banking sector and this could have resulted in upside price movement of the share prices.

For HBOS the CERs were at much higher levels. From 20 days prior to the date of announcement it gained cumulative excess return of 603.22% and over the next 20 days the CER grew by another 603.75% making the total CERs for the timeline at 1206.97% level. These unprecedented levels of can be justified by the same reasons as mentioned above in the case of Lloyds TSB.

Another additional factor that added to these high levels of excess returns is the condition of this banking giant at the time of merger. The company was much bigger than the Lloyds TSB but it could not bear the brunt of the recession and continuously it was going deeper into the problem, finally Gordon Brown’s government took the lead in rescuing the bank from failing and advised Lloyds TSB to acquire the firm. These rescue measure infused a positive signal among the shareholders and that resulted in the growing share price of HBOS which was touching the rock bottom before the deal.

Exhibit 2: Daily and Cumulative Excess Returns of Merging Firms During Period (-20 to +20)
Day (t) Date Rit Rmt E(Rit) XRit CER Rit Rmt E(Rit) XRit CER
-20 8/20/2008 0.69% 0.97% -10.72% 11.41% 11.41% 0.99% 0.97% -27.99% 28.98% 28.98%
-19 8/21/2008 -3.53% -0.03% -12.25% 8.71% 20.12% -2.94% -0.03% -29.86% 26.91% 55.89%
-18 8/22/2008 6.96% 2.52% -8.33% 15.29% 35.42% 6.25% 2.52% -25.08% 31.33% 87.22%
-17 8/26/2008 -2.50% -0.63% -13.17% 10.67% 46.09% -1.30% -0.63% -30.99% 29.69% 116.91%
-16 8/27/2008 1.20% 1.05% -10.59% 11.79% 57.87% 2.80% 1.05% -27.84% 30.64% 147.55%
-15 8/28/2008 3.38% 1.32% -10.17% 13.55% 71.43% 4.18% 1.32% -27.32% 31.50% 179.06%
-14 8/29/2008 -0.57% 0.63% -11.23% 10.66% 82.08% 3.36% 0.63% -28.62% 31.97% 211.03%
-13 9/1/2008 1.23% -0.60% -13.12% 14.36% 96.44% 0.40% -0.60% -30.92% 31.32% 242.35%
-12 9/2/2008 1.14% 0.32% -11.71% 12.85% 109.28% -2.21% 0.32% -29.20% 26.99% 269.34%
-11 9/3/2008 -2.41% -2.15% -15.51% 13.10% 122.38% -2.18% -2.15% -33.83% 31.65% 300.99%
-10 9/4/2008 -5.68% -2.50% -16.04% 10.36% 132.74% -6.84% -2.50% -34.48% 27.64% 328.63%
-9 9/5/2008 -2.53% -2.26% -15.68% 13.14% 145.88% -2.48% -2.26% -34.04% 31.56% 360.19%
-8 9/8/2008 11.11% 3.92% -6.17% 17.29% 163.17% 11.43% 3.92% -22.46% 33.89% 394.08%
-7 9/9/2008 -0.73% -0.56% -13.07% 12.34% 175.51% 0.49% -0.56% -30.86% 31.34% 425.43%
-6 9/10/2008 -4.14% -0.91% -13.60% 9.46% 184.97% -2.84% -0.91% -31.51% 28.67% 454.10%
-5 9/11/2008 -4.07% -0.89% -13.57% 9.50% 194.47% -4.34% -0.89% -31.47% 27.13% 481.23%
-4 9/12/2008 2.30% 1.85% -9.36% 11.66% 206.13% -1.66% 1.85% -26.34% 24.68% 505.91%
-3 9/15/2008 -5.44% -3.92% -18.23% 12.79% 218.91% -17.55% -3.92% -37.14% 19.59% 525.50%
-2 9/16/2008 2.19% -3.43% -17.47% 19.66% 238.57% -21.72% -3.43% -36.22% 14.50% 540.01%
-1 9/17/2008 0.00% -2.25% -15.66% 15.66% 254.23% -19.18% -2.25% -34.02% 14.84% 554.85%
0 9/18/2008 -15.10% -0.66% -13.21% -1.89% 252.34% 17.34% -0.66% -31.03% 48.37% 603.22%
1 9/19/2008 20.32% 8.84% 1.38% 18.94% 271.28% 28.91% 8.84% -13.26% 42.17% 645.38%
2 9/22/2008 -3.76% -1.41% -14.37% 10.61% 281.89% -6.07% -1.41% -32.44% 26.38% 671.76%
3 9/23/2008 -4.82% -1.91% -15.14% 10.32% 292.21% -13.78% -1.91% -33.38% 19.60% 691.36%
4 9/24/2008 2.01% -0.79% -13.41% 15.42% 307.63% 0.17% -0.79% -31.28% 31.44% 722.81%
5 9/25/2008 2.34% 1.99% -9.14% 11.48% 319.11% 1.94% 1.99% -26.07% 28.01% 750.82%
6 9/26/2008 -8.14% -2.09% -15.41% 7.26% 326.38% -5.82% -2.09% -33.71% 27.89% 778.71%
7 9/29/2008 -13.45% -5.30% -20.34% 6.89% 333.27% -18.06% -5.30% -39.72% 21.66% 800.37%
8 9/30/2008 4.26% 1.74% -9.53% 13.79% 347.06% -13.80% 1.74% -26.55% 12.75% 813.12%
9 10/1/2008 10.38% 1.16% -10.41% 20.79% 367.85% 21.00% 1.16% -27.62% 48.62% 861.73%
10 10/2/2008 4.80% -1.80% -14.97% 19.77% 387.61% 14.85% -1.80% -33.17% 48.03% 909.76%
11 10/3/2008 10.78% 2.26% -8.73% 19.51% 407.13% 17.87% 2.26% -25.57% 43.44% 953.20%
12 10/6/2008 -10.77% -7.85% -24.26% 13.50% 420.62% -19.80% -7.85% -44.50% 24.70% 977.90%
13 10/7/2008 -12.93% 0.35% -11.66% -1.27% 419.35% -41.54% 0.35% -29.15% -12.39% 965.51%
14 10/8/2008 -6.87% -5.18% -20.15% 13.28% 432.63% 24.47% -5.18% -39.49% 63.96% 1029.47%
15 10/9/2008 0.83% -1.21% -14.06% 14.89% 447.53% 31.20% -1.21% -32.07% 63.26% 1092.74%
16 10/10/2008 -10.55% -8.85% -25.79% 15.24% 462.76% -19.09% -8.85% -46.36% 27.28% 1120.01%
17 10/13/2008 -14.47% 8.26% 0.49% -14.95% 447.81% -27.54% 8.26% -14.34% -13.20% 1106.81%
18 10/14/2008 -6.60% 3.23% -7.25% 0.64% 448.45% -5.22% 3.23% -23.76% 18.54% 1125.35%
19 10/15/2008 -0.73% -7.16% -23.20% 22.47% 470.92% 0.47% -7.16% -43.20% 43.67% 1169.02%
20 10/16/2008 -0.13% -5.35% -20.42% 20.28% 491.20% -1.87% -5.35% -39.81% 37.95% 1206.97%

Overall, it can be concluded that the merger and period under review support the theory which puts forward that in an acquisition and merger the target and the bidding both firms’ shareholders gain excess returns, that is it creates wealth for the shareholders (See Exhibit 3). However, the case under review can be taken as a token for the proof of these theories as the results obtained are not free from the external environment. The deal was hugely affected by the outside economic conditions and the gain in the shareholders’ wealth cannot be directly attributed to the merger only.

Exhibit 3: Cumulative Excess Returns

Lloyds TSB


Announcement Effect:

In order to further analyze the announcement effect, the forty days period from day -20 to +20 was partitioned into various sub-periods. Then the proportion of the total build-up in CER during this period as accounted by the various sub-periods was computed.

Announcement Effect and Lloyds TSB:

Exhibit 4 shows the announcement effect in CERs of forty days for Lloyds TSB. The exhibit depicts a homogeneous distribution of announcement over the forty days (-20 to 20). Except for the announcement date all other sub-periods are contributing around similar weights for the overall CER. This shows that shareholders were indifferent about the acquisition. However, this behavior of shareholders seems inconsistent with the facts. The deal was carried out to bring out the HBOS from the crisis at time when Lloyds TSB was itself suffering from credit crunch and before the deal announcement the beta value of HBOS (1.87) was higher than Lloyds TSB (1.56), signifying that Lloyds TSB was endangering its business and shareholders’ money by investing in a more risky business. These all facts should have instigated worries among Lloyds TSB’s shareholders. But against this phenomenon they were completely indifferent over the time line except at the date of announcement. The reason of this indifference may be the invisible hand of government behind this deal, which made shareholders feel safe about their money.

Exhibit 4: CER – Announcement Effect for Lloyds TSB
Sub-Period -20 to -10 -10 to -1 0 +1 to +10 +11 to +20
CER 122.38% 131.85% -1.89% 135.27% 103.59%
Announcement Effect
(-20 to 0)
48.50% 52.26% -0.76%
Announcement Effect
(0 to +20)
-0.79% 57.08% 43.71%
Announcement Effect
(-20 to +20)
24.91% 26.84% -0.38% 27.54% 21.09%

Announcement Effect and HBOS:

Exhibit 5: CER – Announcement Effect for HBOS
Sub-Period -20 to -10 -10 to -1 0 +1 to +10 +11 to +20
CER 328.63% 226.21% 48.37% 306.54% 297.21%
Announcement Effect
(-20 to 0)
54.48% 37.50% 8.02%
Announcement Effect
(0 to +20)
7.42% 47.01% 45.58%
Announcement Effect
(-20 to +20)
27.23% 18.74% 4.01% 25.40% 24.62%

Exhibit 5 shows the announcement effect in CERs for the HBOS’s shareholders. The results are quite similar to that of Lloyds TSB and the CERs are distributed homogenously over the time line. The only difference is at the announcement time. Unlike the negative weight in the case of Lloyds TSB, HBOS experienced positive weight at the announcement date, which seems logical as the deal was like a rescue plan for the HBOS to bring it from the crisis and hence shareholders were positive about the deal.

Excess Returns to Lloyds TSB-HBOS Combined:

Using the equation (4) the combined excess returns for 20 days after the announcement date is calculated (Exhibit 6), which is at the higher levels like the separate entities. The cumulative combined excess return reached to 360.95% at 20 days after the announcement.

Exhibit 6: Excess Return to Lloyds TSB-HBOS Combined
Day Daily Excess Return Combined Excess Return (XRbt)
t Lloyds TSB HBOS Based on Market value
As on (t) Cumulative Gain/Loss
1 18.94% 42.17% 26.71% 26.71%
2 10.61% 26.38% 15.88% 42.59%
3 10.32% 19.60% 13.43% 56.02%
4 15.42% 31.44% 20.78% 76.80%
5 11.48% 28.01% 17.01% 93.81%
6 7.26% 27.89% 14.17% 107.98%
7 6.89% 21.66% 11.84% 119.82%
8 13.79% 12.75% 13.44% 133.26%
9 20.79% 48.62% 30.10% 163.35%
10 19.77% 48.03% 29.22% 192.58%
11 19.51% 43.44% 27.52% 220.10%
12 13.50% 24.70% 17.24% 237.34%
13 -1.27% -12.39% -4.99% 232.35%
14 13.28% 63.96% 30.24% 262.59%
15 14.89% 63.26% 31.08% 293.66%
16 15.24% 27.28% 19.26% 312.93%
17 -14.95% -13.20% -14.37% 298.56%
18 0.64% 18.54% 6.63% 305.19%
19 22.47% 43.67% 29.56% 334.76%
20 20.28% 37.95% 26.19% 360.95%

This result is unlike the results exhibited by other researches where researchers found that the combined entity after the merger doesn’t provide excess returns to the shareholders. This also negates the common hypothesis formed among the researchers that a merger is either a zero sum game or a loss game for the combined entity.

    1. Conclusion

This chapter dealt with the methodology and the analysis of the acquisition of HBOS by Lloyds TSB in the context of shareholders’ wealth maximization. The results of the analysis show that the merger of Lloyds TSB and HBOS resulted in win-win game for both the firms’ shareholders and they gained heavy excess returns around the announcement date.

The analysis of announcement effect depicts that the excess return is homogenously distributed over the forty days of time line. However, these excess returns cannot be solely attributed to the merger announcement. But, external economic conditions also play a role in this. The rescue package for the banking industry announced by U.K. government might have encouraged the shareholders to positive for these two firms.

Chapter 5: Conclusions and Summary

    1. Introduction

This final chapter of the dissertation includes summary of the dissertation and some of the concluding remarks. The chapter also contains limitations of the empirical analysis carried out and finally it also provides suggestions for further research.

    1. Conclusions and Summary

The purpose of this study was to examine the financial implications of the Lloyds TSB-HBOS merger on shareholders’ wealth. The profitability for shareholders was investigated by examining the daily excess returns that accrue to the shareholders around the date of announcement of the merger deal. Three levels of analysis were carried out in the study namely: excess return for the shareholders of firms, announcement effect and finally excess return for the combined entity.

The study shows huge positive excess returns for the shareholders of both firms around the announcement date. The results were unlike the results obtained by the other researchers and one of the possible reasons of this kind of result can be found in the external economic conditions prevailing in the market. Since, the deal was like a rescue package for a HBOS which had lost its more than half of the market value in just few trading days, so the investors and shareholders might have taken the acquisition as a positive sign.

    1. Limitations of the Research

There were few limitation in the study carried out in this dissertation. The first and the foremost limitation of this study is that we didn’t take in to account the external economic conditions to analyze the shareholders’ wealth. The excess returns may be due to some external factors affecting the stock price of target or bidding firm and in these conditions it could be erroneous to conclude that shareholders wealth is maximized by acquisition or merger.

Another limitation of the study lies in market orientated nature of the analysis. The model we used relies heavily on market values, and there may be a possibility of shareholders overvaluing the shares (Dong, Hirshleifer, Richardson, & Teoh, 2003).

    1. Suggestions for Further Research

Similar studies can be carried out on the larger set of merger deals. The general motives behind the merger and acquisition process among loss making or crisis suffered companies may be explored. Future research might investigate whether the shareholders’ returns vary with the nature of mode of payment. The profitability of the bidder firms and target firms can be investigated for different kinds of strategies like tender offers, related mergers, unrelated mergers or conglomerates. These returns can be studied both for the short term as well as the long term and the performances compared.

Stock price movements (market variables) are one of the tools to study the performance of mergers. Other tools (book value) also can be used to calculate the synergy generated by such deals. A study may be conducted to examine the performance of the companies before and after the introduction of the takeover code.


Asquith, P. (1983). Merger Bids, Uncertainty, and Stockholder Returns. Journal of Financial Economics , 51-86.

Becher, D. (2000). The Valuation Effect of Bank Mergers. J. CORPORATE FINANCE 6 , 189-214.

Chavaltanpipat, A., Kholdy, S., & Sohrabian, A. (1999). The wealth effects of bank acquisitions. Applied Economics Letters , 5-11.

Datta, D., Pinches, G., & Narayanan, V. (1992). Factors Influencing Wealth Creation from Mergers and Acquisitions: A Meta Analysis. Strategic Management Journal , 67-84.

Dong, M., Hirshleifer, D., Richardson, S., & Teoh, S. (2003). Does Investor Misvaluation Drive the Takeover Market? EFA 2003 Annual Conference Paper No. 652, Dice Center Working Paper No. 2003-7 .

Firth, M. (1979). Profitability of Takeovers and Mergers. The Economic Journal , 316-28.

Franks, J., & Harris, R. (1989). Shareholder Wealth Effects of Corporate Takeover: The U.K. Experience 1955-1985. Journal of Financial Economics , 225-49.

Houston, J., James, C., & Ryngaert, M. (2001). Where Do Merger Gains Come From? Bank Mergers From the Perspective of Insiders and Outsiders. J. FINANCIAL ECONOMICS , 285-331.

Huang, Y., & Walkling, R. (1987). Target Abnormal Returns Associated with Acquisition Announcements: Payments, Acquisition Form, and Managerial Resistance. Journal of Financial Economics , 329-49.

Jarrel, G., Brickley, J., & Netter, J. (1988). The Market for Control: The Empirical Evidence Since 1980. Journal of Economic Perspectives , 49-68.

Jensen, M., & Ruback, R. (1983). The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics , 5-50.

Limmack, R. (1991). Corporate Mergers and Shareholder Wealth Effects: 1977-1986. Accounting and Business Research, 21 , 239-251.

Lloyds Banking Group. (2009, August 31). Historicl Share Price. Retrieved August 31, 2009, from Lloyds Banking Group:

Lloyds TSB and HBOS: Monster mash . (2008, September 25). Retrieved August 31, 2009, from The Economist:

Lloyds TSB seals £12bn HBOS deal . (2008, September 17). Retrieved August 31, 2009, from BBC NEWS:

Mandelker, G. Risk and Return: The Case of Merging Firms.

Manne, H. G. (1965). Mergers and the Market for for Corporate Control. Journal of Political Economy, 73 , 110-120.

Mishra, A., & Goel, R. (2005). Returns to Shareholders from Mergers: The Case of RIL and RPL Merger. IIMB Management Review , 69-79.

Nail, L., & Parisi, F. (2005). Bank Mergers and Their Impact: A Survey of Academic Studies. BANK ACCOUNTING & FINANCE , 3-10.

Staff, I. (2008, September 19). Lloyds TSB and HBOS merger leads to IT savings. Retrieved August 31, 2009, from CIO:

Sudarsanam, S., Holl, P., & Salami, A. (1996). Shareholder Wealth Gains in Mergers: Effect of Synergy and Ownership Structure. Journal of Business Finance and Accounting , 673-98.

Tse, T., & Soufani, K. (2001). Wealth Effect of Takeovers in Merger Activity Eras: Empirical Evidence from the UK. International Journal of the Economics of Business, Vol. 8, No. 3 , 365-377.

Weidenbaum, M., & Vogt, S. (1987). Takeovers and Stockholders: Winners and Losers. California Management Review , 157-168.

Weston, J. F. (66-80). The nature and significance of Conglomerate Firms. St. John’s Law Review, 44 , 1970.

Wong, D. S. (2008). DETERMINATION OF MERGER NOTIFICATION M/08/036 – LLOYDS TSB / HBOS. The Competition Authority.

Yahoo. (2009, August 31). Historical Prices of FTSE 100. Retrieved August 31, 2009, from Yahoo Finance:^FTSE

Adams Equity Theory

Equity, as the general dictionary defines, is fairness in a very basic sense. The theory of Equity in the workplace was proposed by John Stacey Adams in 1963 after looking at the similar motivation models proposed by Maslow, Handy and Herzberg. Adams, being behavioral psychologist, studied the effects of variables on worker motivation in the workplace and came up with his own theory of perceived equity influenced by what is thought to be ‘fair and reasonable’.

In very simple terms, Adam’s theory of equity provided that if the effort made by a worker was equal to the result of that effort, then this worker would consider this equitable. In scientific terms, Adam created a formula (or a ratio) where we calculated equity by measuring the inputs (effort) and the outputs (result). Thus when the output was equal or higher than the input, the worker would feel motivated and hence work better. (Miner, 2007)

According to Adam, inputs can be defined in many variables other than just the number of hours spent at work. Inputs such as effort made by the worker, loyalty to the organization, number of hours put in, skill-set used, tolerance practiced, determination and enthusiasm, support given to co-workers, sacrifices made, etc. Similarly output is not just the salary received for the work done, rather it is all kind of financial rewards and non-financial rewards like recognition for the work, gain in reputation, praise from the co-workers, having a sense of responsibility and power, training and new skills learnt and developed, promotions received, etc . Thus for an employee to feel equitable, there needs to be a cohesive balance between the inputs and outputs. (Miner, 2007)

However, Adam being a behavioral scientist understood exactly that simple input equals output cannot be described as equity as humans are affected by other humans. Therefore Adams stated a term “referent others” in his theory that explains that people measure the balance of fairness by using other’s situation as a reference point. Thus Adam’s theory goes beyond a simple effort and reward calculation. It studies deeply the inbuilt human behavior of comparison and explains that motivation increases not just by pay and rewards, rather by level of pay and rewards in comparison to others. (Cosier & Dalton, 1983)

One would expect that if our inputs and outputs are equal, we would be motivated as the ratio of output to input will be 1. However, Adams define equity as (Cosier & Dalton, 1983)

where O =Outputs, I =Inputs, p =Self, o = Others

Hence, the ratio of output to inputs of self should be equal or greater than the ratio of output to inputs of self to motivate oneself. This formula can be simply explained that if a person gets a salary of $5000 and is increased to $10000 without any extra input, then ideally the person would feel motivated as the ratio of output to input increased. However if a co-worker with similar work responsibilities gets a salary boost from $5000 to $15000, this would have a de-motivating effect. This is simply because people compare their own situation with the situation of others and formulate their own sense of fairness or equity according to these work situations. (Cosier & Dalton, 1983)

Adams theory need to be understood by the management of organizations since it can help them craft policies that motivate the required number of people without de-motivating others. This theory further reminiscent of the fact that actions are not done in isolation thus they result in different reactions. Effective management of these actions need to be done beforehand to gain a favorable experience.


Adams, J.S. (1963). Toward an understanding of inequity. Journal of Abnormal and Social Psychology. Vol. 67, p422-436

Carrell, M.R., Dittrich, J.E. (1978). Equity Theory: The Recent Literature, Methodological Considerations, and New Directions. Academy of Management. The Academy of Management Review. Briarcliff Manor: Apr. 1978. Vol. 3, Iss. 2; p. 202

Miner, J. B. (2007). Organizational behavior, Volume 4. M.E. Sharpe, p.92-102.