Drawing from my expertise in corporate finance at Ghanaian banks like Ecobank, where I’ve advised on M&A and divestments, this response incorporates real-world cases like the 2017-2019 bank mergers post-cleanup and global energy transitions. Ghana’s regulatory environment, including SEC approvals for transactions, emphasizes value creation and compliance.

(a) Reasons for Shell Petroleum’s Divestment to Vivo Energy

Shell’s 2018 divestment of downstream assets in Africa (including Ghana) to Vivo Energy was strategic, aligning with global shifts to renewables under ESG pressures. Vivo, a joint venture, markets Shell brands while Shell focuses upstream.

(i) General Factors (10 marks)

• Strategic Refocusing: Firms divest non-core assets to concentrate on high-growth areas. Shell shifted to upstream exploration and renewables, reducing exposure to volatile retail margins.
• Capital Allocation Efficiency: Divestments free capital for reinvestment. Shell raised funds for low-carbon initiatives, complying with global regulations like EU emissions standards, indirectly affecting African operations.
• Risk Mitigation: Downstream operations face regulatory risks (e.g., fuel price caps in Ghana) and competition from locals. Divestment reduces operational risks, as per Basel III’s operational risk frameworks adapted by BoG.
• Market Dynamics: Declining oil demand due to electrification prompts exits from retail. In Ghana, post-DDEP, energy firms prioritize liquidity.
• Shareholder Value Enhancement: Divestments boost ROE by shedding low-return assets, appealing to investors amid GSE’s emphasis on profitability.
• Tax and Regulatory Incentives: Favorable tax treatments for asset sales, under Ghana’s Income Tax Act, 2015 (Act 896), encourage such moves.

(ii) Specific Factors (5 marks)

• Partnership Synergies: Vivo, backed by Vitol and Helios, specializes in African distribution, allowing Shell to retain brand value without operational control.
• Local Content Compliance: Ghana’s Petroleum Commission pushes local participation; divestment to Vivo (with African focus) aids compliance.
• Cost Savings: Shell avoided high maintenance costs for outlets amid cedi depreciation.
• ESG Pressures: Investor demands for net-zero goals (e.g., Shell’s 2021 targets) accelerated downstream exits.
• Economic Conditions: Post-2018 oil price dips made retail less profitable.

(iii) Why a Firm May Choose to Divest Part of Its Business (10 marks)

• Unlock Hidden Value: Assets may be undervalued within a conglomerate; divestment realizes fair market value, as in Shell’s case where Vivo’s expertise enhanced outlet performance.
• Debt Reduction: Proceeds repay debt, improving balance sheets—crucial post-DDEP for Ghanaian firms.
• Antitrust Compliance: Avoids monopoly issues; e.g., SEC Ghana reviews for competition.
• Operational Simplification: Reduces complexity, enhancing governance per BoG’s 2018 Directive.
• Response to Market Changes: Adapts to disruptions like digital fuels or renewables.
• Failure to Integrate: Post-acquisition underperformance leads to spin-offs.
• Activist Investor Pressure: Shareholders push for breakups to maximize returns.
• Tax Efficiency: Capital gains structuring under international treaties.
• Crisis Management: During downturns (e.g., COVID-19), divest non-essentials for liquidity.
• Strategic Alliances: Forms partnerships like Shell-Vivo for mutual benefits.

(b) Main Causes of “Failure” of Takeovers (5 marks)

Takeover failures, as seen in Ghana’s banking mergers (e.g., some post-2017 integrations), often destroy value. Key causes:

• Overpayment: Bidders pay premiums exceeding synergies, leading to goodwill impairments.
• Cultural Clashes: Integration fails due to mismatched corporate cultures, causing talent loss.
• Regulatory Hurdles: Delays or denials from BoG/SEC, as in antitrust reviews.
• Poor Due Diligence: Undiscovered liabilities (e.g., hidden NPLs in banks) surface post-deal.
• Economic Shifts: Macro changes (e.g., cedi volatility) erode projected benefits.