Merger, Acquisition, and International Strategies example AT&T and Comtech - Essay Example

? Merger, Acquisition, and International Strategies Introduction Merger as the suggests, involves mergingor putting together two or more different business entities from a sole management, administration or operations to one major entity. Merging business may be agreed or necessitated by the need of expansion, attracting new markets, gaining market share, improving productivity and/or combining the factors of production in each separate entity to achieve a positive growth as one entity. Depending with the financial, operational and the long-term goals of the merging firms, clauses are spelt out to benefit the involved firms in running the merged entity. They may vary from managerial, financial, marketing and the ownership ratios which define each entity’s roles and expected targets (Kesner, 2008 pp327-342). Acquisition on the other hand can be viewed as process in which a large company; a firm enjoying a large capital base, investment base, corporate and governance monopoly and/or with economies of scale, buys out new upcoming or underperforming firms with an aim of improving productivity, strengthening its market share and/or to redeem these underperforming firms out of bad debts and unemployment of resources. Acquisition should mutually benefit the acquirer and the target firm in that the acquirer is looking forward to strengthen either its market share, reduce its cost of production and efficient transfer of factors of production within the firm. On the other hand the target firm; the new, small or the underperforming firm which is bought out by the larger and performing firm, is entitled to full share of the buyout and each shareholder given his share income as per the firms memorandum of understanding. International strategies can be looked at as management planning processes to expand local business entity into the foreign market. Depending with the firm’s activities, that is, if it’s a service providing firm and/or it’s a goods producing firm, strategies will differ and the company’s goals on the international market will also influence the strategies to be applied. Expansion of companies to new external markets will involve strategic management, forecasting and analysis of the new markets in that, the company must meet the consumer needs, change value, fight competition to get the market share without compromising the brand’s image. This is according to Kinnunen Jani’s fourth journal: real Options and Strategies (2011, pp117-141).With this in mind, acquisitions and/or mergers may be an appropriate model for easier penetration in to the new international market. To understand the concepts of Merger, Acquisition and International strategies, we shall look at the different merging and acquiring firms in terms of their performances when they were sole entities and after merging. In addition we shall evaluate the international strategies used by these firms; those that have expanded their operations outside the United States and evaluate those that have their operations within the United States, how they fair in the internal trade and possibly advise them on either to merge or to remain in sole proprietorship. We shall look at two telecommunication companies in the United States: AT&T and Comtech telecommunications. Question1. For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice? AT&T is the largest provider of communication services and broadband subscriptions television service. Providing both the mobile and fixed telephony services, it enjoys a commanding market share of 107.9 million mobile customers; the company has seen a lot of transformations in terms of operations ownership and expansion since its inception in 1885. AT&T acquired Bell Company in December 31 1899 for a legal lawsuit. Being a market leader after the invention of the telephone by Graham Bell, the company had economies of scale compared to Bell Company thus the buying out reduced competition and strengthened AT&T brand in the United States. This has seen the company continue to enjoy economies of scale despite its breakup to form Southwestern Bells. Still maintain its brand, it went on to buy Metromedia mobile business and several cable companies in the early nineties. Later towards the end of 1990’s it went on to buy several communications companies and selling its cable businesses. These market mergers and purchases saw the company grow outside the United States territories to venture business in Africa and Asian markets, and by 2005 AT&T had a total market capitalization of over $16 billion. To achieve this, the company had to undergo several transformations; to merge and purchase new businesses in the new overseas markets in order to retain the market. For instance being the market leader in terms of technological advancement, penetration in African market was worth and it was eased by cheap labor. Acquisition of the telecommunication startup companies in Africa, joint ventures and new startup in the countries with a large consumer base like Nigeria, were the appropriate corporate strategies used to acquire the market share. These were achieved through portfolio management, restructuring of the existing firms, transfer of skills and sharing of activities with the native residents. With the existence of other telecommunication providers in the new markets, the likes of Vodacom, Bhartel etc., the company had to apply appropriate international business-level strategies to get market share. For instance they applied the focused differentiation to capture network speeds, user interfaces and the unstructured supplementary data services to ease the auxiliary services of the system to thee clients in terms of reliability and accessibility. In addition, they used the integrated low cost differentiation strategy by combining low cost gadgets and offers to meet different income levels of the African and other Markets. This was also to meet climatic and environmental conditions in these countries. Question 2: For the corporation that has not been involved in any mergers or acquisitions, identify one (1) company that would be a profitable candidate for the corporation to acquire or merge with and explain why this company would be a profitable target? Comtech telecommunications on the other hand, is a company in the United States with much of its operations within the territory with no involvement mergers and acquisitions like AT&T. Most of its market is in the United States denying it the profits margins due to the market saturation by the big players like AT&T. Its absence in the external and international market puts it at a poor competitive advantage state and to expand in terms of capitalization and market uptake; for instance, market capitalization of AT&T stands at $20 billion while Comtech telecommunications trails at $20.65 million. The disparity can be explained by lack of diversification and expansion to new international markets. With these financial trends, Comtech communications will need to diversify its operations and expand to incorporate international strategies to catch up with the market. To venture in these international markets, Comtech will need corporate and business decisions on the appropriate business ventures. Depending with the market they may be willing to venture, acquisition or merger will necessitate the move. For instance emerging middle class income earning markets in Africa is a productive market to tap. Considering the existence of major telecommunication players in this region, Comtech will have to contemplate on the issue of a merger compared to acquisition. This is due to financial and infrastructural investments of the already existing players, that is, Bhartel and Vodacom. Merging with Bhartel will be more productive given its activities in more than 20 countries. In addition, infrastructural development of Bhartel is significant and long term phased compared to other players. Question 3: For the corporation that operates internationally, briefly evaluate its international business-level strategy and international corporate-level strategy and make recommendations for improvement. To venture in the international market; where there are big players in terms of infrastructural and products dorminance, it will need some business level strategies to make a mark in these new markets. The use of the following five business level strategies helped AT&T acquire market share and long-term presence in these markets. Cost leadership: This is where they may opt to increase internal efficiency so as to have a margin in returns due to reduced cost of production. This will intern reduce the cost transferred to the customer thus lowering the overall price of commodities and services. This will help them compete with the already existing stakeholders in the market. Differentiation: This is where they may adapt new and customized features in their products and services with an aim of luring customers away from the competitors. This may take the form of new features in their mobile telephony gadgets and customizing services features to new brands and offers. Focused low cost and differentiation: This is whereby they apply new customization of their gadgets and network services to a certain consumers within the market. This requires more research to understand the current market satisfaction rates and an analysis to find out the untapped regions of the market and concentrate its innovations on the segment. Integrated low cost/Differentiation: This is whereby they can combine the low cost and differentiation strategy with an aim of acquiring their market. On the corporate strategy, they may use Portfolio management whereby they have to invest much on the structuring new market in terms of network signal and reliability, infrastructural investment and overall product innovations. They may opt to adapt restructuring and transfer of skills or sharing of activities with the clients in the new market. Question4: For the corporation that does not operate internationally, propose one business-level strategy and one corporate-level strategy that you would suggest the corporation consider. Justify your proposals. I would recommend Comtech telecommunications to apply would be the integrated low cost/ Differentiation strategy. This is more appropriate due to its flexibility in adapting to new markets and its available risks mitigation strategies. For instance the strategy is more resilient to environmental changes. It is more flexible for the new markets to adapt new skills and technology and leveraging of the new products line with a guaranteed low cost of production. For the corporate strategy I would recommend sharing of activities strategy as this will give room for the company to fully understand the customer needs in order to maximize their utility and develop production and marketing strategies to cut the cost of production, reducing the overall price so as to gain and maintain the market (Enkel, 2012). Conclusion Merger, acquisition and international strategies are prerequisite objectives that companies should put into considerations when they are laying out their goals. They allow smooth transition of business ventures both locally and internationally. References King, D. R, Slotegraaf, R & Kesner, I. (2008).Merger strategies. "Performance implications of firm resource interactions in the acquisition of R&D-intensive firms". Organization Science 19: p 327–340. Collan, M & Jani, K (2011). Acquisition: Journal of Real Options and Strategy 4 (1): p 117–141. D. Enkel & Covin, J. G. (2012).International Strategies: “Meta-analyses of Post-acquisition Performance: Indications of Unidentified Moderators". Strategic Management Journal 29. Read More