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Introduction
The heightened business challenges posed by the prevailing financial environment in the UK calls for adoption of sound corporate management strategies to not only guarantee the survival of the corporate but also improve their performance in the highly competitive market (Buckle, & Thompson, 2004). Different business ventures have embarked on varied management strategies to expand their market share thereby increasing their revenue base in an attempt to be stable and out do their rivals in the market (Levine, & Aaronovitch, 1981). These management strategies may include among others, acquisition of small firms, takeover of rival firms, as well as forming of mergers. The latter strategy forms the basis of this paper. First and foremost, the prevailing financial and legal environment within the UK provides a suitable environment for the takeovers as well as company mergers (Harbord, & Steffen, 2010). This scenario is however different in many parts of Europe due to the existing hurdles in the business market. For instance, it is difficult to acquire rival firms due to the fact that many firms are not listed in the stock market and therefore the purchase of the shares is difficult. Besides, even if such firms were quoted in the stock market, other barriers still exist. These include the ability to control of shareholdings that are held by state or banks and the authority bestowed upon the employees to influence important decisions in the company to be acquired (Harbord, & Steffen, 2010). The merger between T-Mobile and Orange in the UK is tipped to not only improve the firms’ financial health but also enhance service delivery to the customers in the telecommunication industry (Leach, 2010).
The UK market place has provided suitable environment for mergers and acquisition through the prevailing market conditions including legal as well as other regulatory measures (Buckle, & Thompson, 2004). Various businesses have resorted to integrating their operations with other like-minded firms in an attempt to improve their performance and subsequent profitability. Mergers have a variety of benefits to the involved organizations in a myriad of ways. To begin with, an organization can engage another similar firm in a merger so as to minimize competition in the market place. This is always witnessed in situations where the involved companies produce similar products and share market place. They therefore find themselves in two opposing camps where competition is inevitable. Consequently, they join to lessen the competition so that both can survive in the market place. Besides, companies can also form mergers so that their shareholders can maximize the value of their shares (Gugler, & Yurtoglu, 2008).
Finally, organizations form mergers when one or both of them have experienced poor performance in the recent past and therefore take such initiatives to improve their efficiencies in production. This is possible given the fact that the redundant factions of the firms involved are done away with and replaced by effective managers (Gugler, & Yurtoglu, 2008). T-Mobile and Orange companies share both the products they offer to the customers as well as the market within which they both operate. As a result, they join together under a horizontal form of merger. Such a merger is destined to create a larger organization know as Everything Everywhere which has the potential to not only enhance their efficiency in operation but also increase their market share. This is because the operations of T-Mobile and Orange are similar in nature and would therefore merge certain operations such as manufacturing in an attempt to reduce the production costs. The merger between the two telecommunications companies would increase their market share to surpass rivals O2 and Vodafone. Notably, Everything Everywhere would control slightly above 28million customers translating to about 37% of the UK market (Leach, 2010).
The two companies have been in the telecommunication industry for a couple of time. To begin with, Orange Company indulges in the mobile network operation as well as the provision of internet services to about seventeen million customers in the United Kingdom. The telecommunications company was founded in 1994 Hutchison Telecom before being bought by France telecom. The company operates third generation services, GPRS as well as EDGE and is in its late stages of venturing into the HSDP network. The firm’s second generation network covers approximately 99% of the UK population and has the largest market share as far as the integration of third and second generation network is concerned. The company has since spent a lot of finances in its investments operations. For instance, the company claimed having spent about one and half million pounds in 2008 on a daily basis in investing in its network. The firm currently employs about twelve thousand five hundred workers in the UK. Besides, it dictates about twenty two percent of the total market shares in the UK which places the firm at the third position after O2 which has twenty seven percent and Vodafone having approximately twenty five percent. Orange company has ever since displayed strong performance in the UK market. Even though the firm is lowly rated in the business market as having a high leverage and weak financial profile as well as facing high risks, Orange Company has adopted management strategies that are meant to enhance the company’s competitive ability (Leach, 2010).
At the outset, Orange firm has displayed positive track record in regard to commercial achievements and network development as well as the prospects of very strong market growth. The company has achieved about 1.4 million subscribers since its inception in 1994 representing about fifteen percent of the market share. This is a commendable achievement given the fact that its rivals in the telecommunication industry had stabilized long ago before the entry of the Orange Company. Orange’s extensive and high quality network, good market image as well as its proven commercial skills places the company at a suitable competitive position. However, the intense price competition in the UK market is threatening to affect the financial wellbeing of the firm. Furthermore, the company is facing other sources of challenges as it shares the market with firms that are well established and therefore have stronger financial base. Apart from the U.K. GSM operation, the firm also provides its services in Germany and France as well as a paging operation in the U.K. These ventures constituted about 32% of Orange’s total revenues in 1997.
T-Mobile on the other hand has swerved through a lot of challenges in the business market in the UK before considering the merger with Orange Company. The German- based company was founded way back in 1980 and owned by Deutsche Telekom and currently operates in more than fifty countries including those in Europe as well as the US. It deals in Fixed and Mobile telephony, DSL, Wireless PDAs, Mobile Broadband and currently serves more than hundred and fifty million subscribers globally. This makes the company the seventh provider of the mobile phone service in the world and the third largest multinational company after the Vodafone of UK and Spain’s Telefónica. Furthermore, the company has around forty million fixed-network lines as well as more than seventeen million broadband lines. The firm currently hosts six thousand and four hundred employees (Levine, & Aaronovitch, 1981). However, the firm has encountered a lot of problems in the market in the recent past and has therefore unveiled plans to revitalize its performance. For instance, T-Mobile admitted losing about 87,000 customers in Britain in a span of three months to the end of June. This is worse compared to its rival companies in the telecommunication industry. O2 for example increased the number of it customers by about 252268 while Orange increased its number by three thousand customers. However, T-Mobile’s performance was slightly better than Vodafone which recorded a massive loss in the number of customers of about one hundred and sixty thousand (Levine, & Aaronovitch, 1981).
Besides, the company’s financial performance has shown some slight improvements in the second quarter of 2009 recording profit of about hundred and thirty four million pounds and margins of slightly above seventeen percent. This performance is however poorer than the previous year’s. The improvement in the firm’s performance witnessed in the second quarter is attributed to the selective customer acquisition as well as tight cost control so far adopted by the company management. The poor performance demonstrated by the firm raised question as to whether the firm should be sold off to the interested companies. The UK is ready for consolidation due to the fact that the country hosts more telecommunications companies than it can easily and realistically support. T-Mobile therefore implemented its crafted plan of integrating its operations with that of Orange mobile in an attempt to improve its performance (Leach, 2010).
As earlier discussed, companies may decide to merger their operations for a variety of reasons. To begin with, companies with similar production processes may merger to minimize operational costs and therefore improve their performance (Levine, & Aaronovitch, 1981). Such mergers can be vertical, horizontal, conglomerate or congeneric mergers depending on the nature of the firms’ operations as well as the products and market within which they operate. The merger between T-Mobile and Orange companies takes the perspective of a horizontal merger where both the two companies produce similar products in addition to operating within the same market and are therefore potential rivals in the business market. Even though this merger is believed to benefit T-Mobile more compared to Orange due to its struggling performance in the competitive market, the merger is bound to benefit both the parties (Wray, 2010). It is acceptable that the merger saved T-Mobile from an imminent write down the firm would have face had it sold the company for a cost less than it had planned. On the other hand, Orange Company seeks to improve its market position in the UK without necessarily indulging cash expenditure or even taking vast debts. At the outset, the new venture referred to as “Everything everywhere” is a product of a fifty-fifty integration of the two companies in question and therefore both the firms are tipped to benefit from the merger. “Everything Everywhere” serves a huge customer base of about twenty eight million in number thereby controlling about 37% of the market share in the UK (Wray, 2010).
Everything everywhere becomes the leading mobile operator in the UK following the merger of the two aforementioned telecommunications companies (Wray, 2010). The joint venture was tipped to offer divergent solutions to its customers after integrating the Orange’s broadband activities. The revenue base of the companies would also increase as that of the new venture stood at approximately eight billion pounds thereby dictating the market share in the UK. Moreover, the new firm would generate estimated synergies with a net present value of more than 3.5billion pounds. On the other hand, the consumers within the stipulated market are also tipped to enjoy from the new joint venture. For instance, the venture would increase network coverage in addition to enhancing the network quality for the second generation as well as third generation services (Gugler, & Yurtoglu, 2008).
Moreover, the joint venture brings the mobile service closer to the customers as it increases the number of shops it owns countrywide. The customers would also enjoy high quality services and products as the joint venture has the capability to invest in innovative new services as well as exploring the modern technologies which would improve the quality of services as well as products. Consequently, the new joint venture would be effective in competing against the other two operators in the UK market due to its economy of scale. Furthermore, the transaction is tipped to increase the value of the shares in the market thereby benefiting the shareholders (Gugler, & Yurtoglu, 2008). The joint venture would also increase the savings by the companies including expenses incurred in network operations, rental expenses as well as maintenance expenses. Besides, the merger would enhance distribution as well as marketing of the new firm’s products ands services. Notably, the higher quantities of sales through the shops introduced by the new venture ensures a reduction of distribution costs as well as reduced number of joint stores and savings in the marketing of the firm particularly the new branding strategy. Finally, the joint venture would reduce other costs including administrative costs. It would also optimize the customer service as well as enlarging information network in the UK (Brigham, & Houston, 2009).
Conclusion
The highly dynamic financial environment prevailing within the UK market has continued to destabilize the operations of many companies. As a result, these companies have to adopt modern management strategies to not only enhance their survival chances but also improve their performance in the highly competitive business market in the UK (Brigham, & Houston, 2009). Different organizations have therefore embarked on varied strategies including acquisition of firms as well as indulging in mergers in an attempt to improve their productivity. The T-Mobile and Orange companies are such organizations that resorted to forming a joint merger to increase their business worth. The horizontal merger sop far adopted by the two aforementioned firms presented a lot of benefits to the companies involved as well as the customers and shareholders. For instance, both the companies improved productivity and minimized operations as well as administrative costs as their operations were integrated and the production costs highly minimized. Besides, the merger saved both the firms especially T-Mobile which was in the verge of collapse. Currently, the joint venture enjoys benefits associated with its large scale operation including large investments due to large revenue base among other benefits. Moreover, the joint venture guarantees the survival of both the firms as it is in a position to effectively compete against the other two rivals in the telecommunication industry.
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