Merger or Acquisition - Essay Example

?Merger or Acquisition Case Study In any sector of business, mergers and acquisitions (M&A) has become a key part of organizational functioning and success. Organizations are merging with other equal companies or acquiring smaller companies as a kind of both survival and a success strategy. That is, when the organization feels that it has to focus on expansion or growth strategy or enter into new markets, one of the effective ways through which it can achieve those best case scenarios is through M&A. In addition, in a globalised world, opportunities are available in many new markets and sectors, and so prospective organizations can merge with each other, instead of fighting independently. On the other hand, if the organization feels it is not performing up to the expected levels, and needs some pep up from external forces, then also they can merge with or acquire company, which is also “sailing in the same boat” and thus facing the same issues. Thus, M&A can be both a successful strategy and at the same time survival strategy, aiding the organizations in the short as well as in the long run. Immediately it can fulfill the short term targets, and in the long run, probably after five years, it can satisfy each entities long term goals. So, this paper focusing on the merger of AT&T and BellSouth will first discuss the stated aims of that deal and the extent to which these aims have been fulfilled or being fulfilled. AT&T Inc is USA’s largest fixed telephony as well as mobile telephony provider. AT&T has reached its present status, after going through a series of break-ups and mergers. The original AT&T was divided in 1983 as a result of the United States vs. AT&T antitrust suit, and Southwestern Bell Corporation (SBC) came into existence as the newer version of AT&T. Then in 1995, SBC changed its name to SBC Communications Inc. Then, finally in 2005, SBC Communications Inc. became AT&T Inc. after purchasing its earlier parent company of AT&T Corporation, acquiring the iconic AT&T logo. AT&T did not reach its current position of largest fixed line and mobile telephony provider in one stroke; it indulged in series of acquisitions and mergers to reach the current status. One of the major acquisitions, which helped it to reach its aim of largest player, is its acquisition of American telecommunication holding company, BellSouth. One of the main aims of this acquisition by AT&T is to create a ‘super-sized’ AT&T, with largest customer base. In case of mergers and acquisitions, in particular acquisitions, the aim of the acquiring company is to further expand its size, operations, reach, etc, by absorbing all the resources of the acquired company. Likewise, in the case of AT&T, it is already a major corporation, while BellSouth was a middle player. Thus, AT&T wanted to further accentuate its size, reach and importantly customer numbers, and this acquisition of BellSouth provided the needed leverage and the numbers. The other associated aim of the acquisition is to control more than half of the telephone as well as internet broadband lines in USA. This way, it also wanted or aimed to beat their competitors. Competition is part of every business, and only if the concerned organization comes up with effective and sometimes “out of the box” strategy, it can beat off the competition. Thus, this way AT&T can beat of its competitors like Verizon, Comcast, etc. With Verizon close on its heels, AT&T wanted to accumulate a customer base, which will be ahead of Verizon and other competitors. So, its aim to garner half of the total telephone and internet lines also pushed it to acquire BellSouth. Apart from these AT&T centric aims, the acquisition was also carried out with another aim of propping up Cingular Wireless, the mobile telephony wing. Even before the acquisition, both AT&T and BellSouth only managed Cingular’s operations, but without an single administrative setup. So, both AT&T and BellSouth through the acquisition process aimed to create a more efficient Cingular Wireless. Firstly, the merger optimally streamlined the ownership as well as the operations of Cingular Wireless. Thus, the “new company will be more innovative, nimble and efficient, providing benefits to customers by combining the Cingular, BellSouth and AT&T networks into a single fully integrated wireless and wireline Internet Protocol network offering a full range of advanced solutions.” (goliath.ecnext.com 2006). With wireless or mobile telephony becoming the omnipresent form of telephony all over the world, creating an efficient and organized Cingular Wireless could aid AT&T in both the short as well as in the long run. One of the other aims of AT&T to go for the acquisition is, try bringing together all or even a sizable number of the 22 companies of the original Bell System. These 22 companies only comprised the original AT&T, until it was divided in 1983. The original grouping of 22 companies was also affectionately known as Ma Bell. With BellSouth also being part of the original grouping, AT&T’s aimed to bring it under one roof. With these aims, both AT&T and BellSouth initiated the acquisition process in 2006. However, the merger plans between the two communication companies did not actualize quickly due to the financial issue of executive stock options, brought in by the shareholders as well as the regulatory authorities. In 2006, AT&T and BellSouth decided to merge (or AT&T decided to acquire BellSouth) with the above mentioned aims of becoming the largest telecommunication company as well as building up a conglomerate of Bell companies. With the merger talks on, the other telecommunication company Cingular also came into the picture as both the companies had a joint ownership of Cingular. With the talks going on, the issue which became the focus of attention is whether the shareholders as well as the regulatory authorities of both the companies particularly BellSouth will give approval for the merger. When this financial issue crept in, the management responded in an effective manner, thereby leading to the eventual acquisition. That is, the board of directors of the two companies decided to give the shareholders of BellSouth 1.325 shares of AT&T common stock for each common share of BellSouth. “According to terms of the deal, BellSouth shareholders will get 1.325 shares of AT&T for each BellSouth share, or roughly $37.09 per share. That's a 16% premium to the closing price on Friday” (Malik 2006). With this offer, the shareholders responded favourably and the merger got actualized, providing many positive outcomes. The main outcome was, the merger brought the three telecommunication companies together under one name and one brand. This merger or consolidation, apart from expanding the market share, reach and customer base, was expected to actualize a positive free cash flow dividends and a strong balance sheet with solid credit metrics. As part of further consolidation and also advantages for the merged entity, the board of directors decided to implement an expanded share repurchase program through 2008. With that program, the company wants to buy back at least $10 billion of its common shares. Importantly, this repurchase is mainly carried out with the intention to counterbalance the share premium paid to the shareholders of BellSouth during the merger. After this financial issue got solved, there were other impediments as well, which were crossed by AT&T and BellSouth before the acquisition was actualized. Importantly the approval of the Federal Communications Commission (FCC) had to be obtained to formalize the acquisition. It was not easy going for AT&T and BellSouth, as FCC granted the approval only after a lot of discussion, and after getting various commitments from the combined entity. That is, to prevent the combined entity of AT&T getting undue advantage and monopolizing the market, FCC wanted commitments from AT&T bordering on equal competition aspects. In addition, FCC wanted to make sure that the AT&T did not raise the tariffs of the internet based services, being provided to other service companies. “The conditions of the merger proposed by AT&T and agreed to by the FCC included the sale of certain wireless airwaves in the 2.5 gigahertz band, a special $19.95 per month price tag for stand-alone basic high-speed Internet service.” (Reardon 2006). Apart from the tariff issue, AT&T also gave a commitment to adhere to Network neutrality rules for a minimum of two years. (2005-2007). Specifically, it agreed “not to provide or to sell to Internet content, application, or service providers, including those affiliated with AT&T/BellSouth, any service that privileges, degrades or prioritizes any packet transmitted over AT&T/BellSouth's wireline broadband Internet access service based on its source, ownership or destination.” (publicknowledge.org). With these commitments proposed by AT&T and approved by FFC, the FCC approved the AT&T's acquisition of BellSouth at a value of approximately $86 billion. “AT&T brand and was forced to agree to price caps, market divestitures and other conditions to please regulators, lawmakers and the FCC at that time” (wirelessindustrynews.org 2011). The new combined company, even while retaining the name AT&T, initiated a coordination process, under which various departments, work processes and importantly employees merged. As mentioned above, the deal also confirmed and consolidated the ownership of Cingular Wireless. In addition, the well known local search engine or website, Yellowpages.com, the other joint ventures between BellSouth and AT&T on the lines of Cingular, was also brought under the preview of the AT&T. The acquisition and the resultant functioning of the combined entity further led to the actualization as well as the accentuation of the aims. That is, one of the first aims of AT&T to go for acquisition is to build a bigger and strong telecommunication enterprise. As BellSouth brought its quota of customers and other resources, AT&T expanded optimally size wise, operations wise as well as customer numbers wise. “Atlanta-based BellSouth dominates local telephone service in nine Southeastern states, while San Antonio-based AT&T operates in 13 states, concentrating in California, Texas and the Midwest,” and so the acquisition led AT&T to become largest telephone service provider. (Bartash and Burton 2006). “The combined company would serve 70 million local-phone customers and 10 million high-speed DSL Internet users.” (crossingwallstreet.com 2006). With such a solid customer base, AT&T Inc. aimed to beat or even nullify the current competition in the form of other telephone service providers like Verizon and new rivals like the Comcast Corp. “By adding BellSouth, AT&T Inc. would make itself the most formidable company in the communications industry and help the carrier to navigate a rising tide of competition from other phone operators or new rivals in the cable industry such as Comcast Corp.” (Bartash and Burton 2006).The other aim for AT&T, which got fulfilled is its want to get the sole control of Cingular Wireless. With Cingular Wireless having a sizable customer base and a good reach, AT&T wanted to optimally develop it and make it a successful mobile telephony wing. The acquisition of BellSouth and the resultant control of Cingular have made this possible. “The acquisition would also give AT&T sole control of Cingular Wireless, the nation's biggest wireless operator with more than 54 million customers. Wireless is the fastest-growing part of the communications business and critical to the success of U.S. phone companies.” (Bartash and Burton 2006). With this acquisition, AT&T is also able to fulfill its other aim of bringing back together a sizable number of the 22 companies of the Bell system. That is, after the acquisition of BellSouth, AT&T is able to reconstitute or bring together ten of the original 22 Bell system companies. From this discussion and analysis of the AT&T and BellSouth merger, or if correctly said, AT&T’s acquisition of BellSouth, it is clear that there existed good opportunities and importantly aims for AT&T to go for the acquisition. From wanting to become the largest telephony provider in USA to bringing back the divided 22 companies of the original Bell system, AT&T is able to achieve the aims and is also in the process of achieving the aims. References Bartash, J and Burton, J 2006, AT&T to pay $67 billion for BellSouth, viewed on March 22, 2011 http://www.marketwatch.com/story/att-to-buy-bellsouth-for-67-billion-200635201930 crossingwallstreet.com 2006, AT&T To Pay $67 Billion for BellSouth, viewed on March 22, 2011 http://www.crossingwallstreet.com/archives/2006/03/att-to-pay-67-billion-for-bellsouth.html goliath.ecnext.com 2006, AT&T, BellSouth to merge, viewed on March 22, 2011 http://goliath.ecnext.com/coms2/gi_0199-5477318/AT-T-BellSouth-to-merge.html Malik, O 2006, Ma Bell -- reborn, viewed on March 22, 2011 http://money.cnn.com/2006/03/06/technology/business2_att_telecom/index.htm publicknowledge.org, Network Neutrality, viewed on March 22, 2011 http://www.publicknowledge.org/issues/network-neutrality Reardon, M 2006, FCC approves AT&T-BellSouth merger, viewed on March 22, 2011 http://news.cnet.com/FCC-approves-ATT-BellSouth-merger/2100-1036_3-6146369.html wirelessindustrynews.org 2011, Will AT&T's network become even slower soon? viewed on March 22, 2011 http://www.wirelessindustrynews.org/news-mar-2011/2440-032111-win-news.html Read More