Mergers and Acquisitions of Vodafone - Research Paper Example

Mergers and Acquisitions of Vodafone INTRODUCTION In September 2013, Vodafone agreed a deal to sell its US operations to Verizon in one of the largest corporate acquisitions in history. The deal greatly impacted the telecommunications industry, with numerous direct and indirect effects on stocks, dividends and trading patterns. The deal also generated up to nine billion dollars in capital gains tax for the United States and United Kingdom governments. In this paper, the writer will discuss the dynamics involved in the deal and possible implications on different parties involved. Verizon Wireless, which had been a part of Vodafone Plc., was growing very fast, and Vodafone wanted to dispose of its assets in the United States and focus on Europe. Vodafone had not had much success with Verizon Wireless compared to its other subsidiaries in Europe and Africa (Goldberg 29). As a result, it identified Verizon Wireless as a possible obstacle to its expansion in Europe and Africa. On the other hand, Verizon Communications – the parent company of Verizon Wireless, wanted to solidify its presence in the US market after making several acquisitions in the past years. It should also be noted that Verizon Communications previously owned Vodafone Italy that was part of an agreement they had signed previously. Vodafone wanted to buy back Vodafone Italy so that it could shore up its operations in Europe while Verizon Communications wanted to solidify its presence in the US market. Out of all the motivations for this acquisition, the two core ones were Vodafone’s need to exit the US market and Verizon’s need to expand. The result was the acquisition. The positive impacts of the deal were far-reaching. Vodafone shareholders received cash payments as a result of the deal, and this boosted investor confidence in the company. Vodafone’s shareholders received large payouts and after this deal, were more likely to stick with the company than ever before (Ottley 46). On the other hand, Verizon’s shareholders were in line to receive increments in dividend income and possible increments in the company’s stock. By becoming the sole owner of Verizon Wireless, Verizon Communications raised the stakes in the US telecommunications market. Competition got stiffer because Verizon was now larger and had more cash flow. Rivals like Sprint had to come up with ways to stem Verizon’s tide after the deal. On the other hand, Verizon enjoyed a market share that it had never had before, becoming, overnight, a behemoth in the telecommunications market. Customers also benefited from the deal because the increased competition resulting from Verizon’s expansion meant potential lower prices in terms of call rates and telecommunications products. Vodafone reduced its debt by half after the deal, meaning its financial position improved and it became more attractive to investors (Goldberg 33). The deal. Its sole ownership of Vodafone Italy led to increased optimism among European investors and customers and had a lifting effect on stocks in Italy, Britain and the United States. Capital gains tax – up to nine billion dollars – gained by the US and UK governments provided finances that could be invested in public projects to improve the lives of citizens. Finally, charities benefited from the deal through UK round-offs as stipulated by the law. By benefiting charities, the deal benefited the public; indirectly. Negative effects of the deal included the fact that due to Verizon’s expanded presence, the possibilities of unfair competition went up. The US government had to be keener on the market after the deal because chances of either Verizon or its major rivals getting involved in unfair competition were increasingly probable. Apart from this, the deal caused a lot of speculation, which is not always good for the market (Soofi and Zhang 31). Even before the deal was signed, there was a lot of speculation that Vodafone would sell its US interests to Verizon. As a result, speculation went on the overdrive in the months leading up to the deal. The public bought and sold a lot of stock in anticipation of the possible effects of the deal on shares; this created volatility and instability in the market. A spinoff of heightened speculation was insider trading, where investors fraudulently obtained trading information and used it to buy or sell stock to unsuspecting customers. Although it is not very public, insiders at Verizon and Vodafone confirmed to certain media that even members of their own staff were found liable for insider trading in the lead-up to the deal. Finally, another negative effect was that Verizon’s expanded presence in the US market made it difficult for new entrants to penetrate the market and tap into niche markets. For Verizon, there was no longer Verizon Wireless and Verizon Communications, the former which had been owned by Vodafone previously. Although customers would remain on Verizon Wireless, there was no longer Verizon Wireless and Verizon Communications because they were merged into one Verizon (Uhl and Gollenia 13). The company did not have to change its organizational structure because it had been the de facto owner of Verizon Wireless, retaining some control over it even when it was majority-owned by Vodafone. A few changes were made in senior management positions, and workers were migrated, but apart from these there was no major change in organizational structure of Verizon. Organizational structure changes in Vodafone took some time, but they eventually took place in 2014. Senior executives announced that there would be a new, basic organizational structure that was built around two operating regions: one was Africa, Middle East and Asia-Pacific, and the other one was Europe. The United States was no longer part of its operating regions. Vodafone also announced some changes in its senior management, but they were so few that they were barely noticed by the public. The human resource management practices of both Vodafone and Verizon were not changed to adapt to the results of the acquisition. The main reason for this is that the two companies have stable and consistent human resource practices that would not be altered by the sale or purchase of minority stakes in other companies. Verizon Wireless would just be a part of the new Verizon, not the whole part (Unoki 32). On the other hand, Vodafone Italy and Verizon Wireless were not major subsidiaries of Vodafone plc; therefore it did not need to alter its human resource practices with the sale or purchase of either. If Verizon or Vodafone brands had been sold to different organizations it would have necessitated changes in human resource practices. Works Cited Goldberg, Richard A. Mergers & Acquisitions 2013: Trends and Developments. New York, NY: Practising Law Institute, 2013. Print. Ottley, Michael. Company Law: 2013-2014. 8th ed. Abingdon, Oxon: Routledge, 2013. Print. Soofi, Abdol S., and Yuqin Zhang. Global Mergers and Acquisitions Combining Companies across Borders. New York: Business Expert, 2014. Print. Uhl, Axel, and Lars Alexander Gollenia. Business Transformation Essentials Case Studies and Articles. Farnham: Ashgate, 2013. Print. Unoki, Ko. Mergers, Acquisitions and Global Empires: Tolerance, Diversity, and the Success of M&A. Abingdon, Oxon: Routledge, 2013. Print. Read More