Orange and T-Mobile Case Study Evaluation Mergers and Acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, management and finance concerned with selling, purchasing, dividing and combination of different firms or similar corporate entities with an aim of raising an enterprise growth in an industry or using a joint venture.
In mergers, two or more entities or firms join forces to become one large firm or a new business, usually with a totally new name and recognition. This mostly takes place between small entities. Legally, merger is a consolidation of two firms into one big legal entity or firm.
In acquisition or takeover, one large firm or entity acquires a generally smaller company which is absorbed and incorporated into the large firm or operates as a subsidiary branch.
A firm may decide to merge with another firm and form one big entity that would have a competitive advantage or monopoly in an industry with an aim of generating more cash flows and profits.
The firms’ performance may change after the merge resulting to different results after the merge. In business valuation, five common ways are used to carry out the business value prior and after the merge. These ways include; assets valuation, historical cash flows analysis, future cash flows valuation, comparative transactions valuation and discounted cash flow valuation.
In mergers, there are a number of advantages accrued when the two firms join to form one large entity. These may include;
- Economies of scale. The large entity formed from the merge would enjoy reduced fixed costs by eliminating duplicate departments or operations and lowering company operational costs without affecting the profits margins hence increasing the financial performance.
- Economies of scope. After the merger, the resultant business entity may have increased or decreased scope of distribution and marketing for its services and products.
- The firm may also gain an increased market share and also raise revenue.
- The profitable firm may acquire the loss making firm in order to minimize its tax liability, unless where legal legislation state otherwise.
- The resultant firm may also enjoy managerial economies where the firm may have the opportunity of managerial specialization and also purchasing economies resulting from increased supplies order and large amount buying discounts.
- Mergers helps resources to be distributed evenly thus avoiding the problem of resources under-utilization or uneven distribution through scarce resources combination or preventing information asymmetry (Barney, 1991).
- Merger also enables firms to get access to underutilized or hidden resources, for instance, real estate and land.
- Some firms may use merging as an alternative to normal hiring procedure where the bigger company acquires the target company thus acquiring the expertise and talents.
In this case report, I will analyze the resulting effects of merge between T-Mobile and Orange telecommunications firms. The merge resulted to a number of effects to the whole telecommunications industry, size of the firms, time considerations and effects to the consumers in terms or call externalizes, network concerns and calling rates.
In September 2009, Orange (owned by France Telecom) and T-Mobile (Owned by Deutsche Telecom), announced plans to merge their operations to form one large telecommunications firms. At the date, the new firm that was to be formed was to be the largest telecommunications company in the United Company with over 68% market share and over 78.7% million subscribers. This would result to one big company commanding the largest market share and this would be interpreted as a monopoly.
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