Analysis of Merger and Acquisition: telecommunication industry

Analysis of Merger and Acquisition: telecommunication industry

admin / January 30, 2019

Executive summary

The paper entails an analysis of the telecommunication industry with regard to cross-border merger and acquisition. An analysis of the political, legal and social environment between the two firms involved is given.

The essay also evaluates the various reasons for the increased customer advocacy with regard to merger and acquisitions. Some of the key reasons cited relate to the high probability of unfair market practices and development of a monopoly. Powerful mergers and acquisition may result into the firm being involved itself in unethical business practices.

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In addition, some of the pitfalls which the customers may experience as a result of merger and acquisition are identified and discussed. Some of these relate to lack of effective customer service and decline in product quality.

The essay also identifies, various ethical dilemmas involved in such a merger and acquisition. Finally a conclusion and a number of recommendations on how to deal with such a situation are outlined.

Introduction

Telecommunication industry has become very competitive in the 21st century due to the intense investment in research and development. In an effort to develop a high competitive edge, firms in this industry are incorporating the concept of merger and acquisition. Mergers and acquisition also takes place between firms of different countries which is referred to as cross-border mergers.

Examples of firms which operate in this industry include Hewlett Packard which is located in the United States and 3-Comm Company which is located in the United Kingdom.

The two firms deal with production of telecommunication and information technology products. In effort to attain synergy in its operation, the firms’ management teams have made acquire enters into a merger and acquisition. The UK legislation supports mergers and acquisition by enabling the shareholders to redeem their shares if they do not want to participate in the merger.

In both the United States and the United Kingdom, the political environment has been conducive for business operation. For example, there are a number of anticompetitive rules which are aimed at regulating business operation.

In their operation, both 3-Comm and Hewlett-Packard companies incorporated anti-trust laws. However, United Kingdom has a relatively high political tension which limits firms from undertaking mergers and acquisition across borders compared to United States. In addition, there is a high probability of United States government blocking conduction of mergers and acquisition between firms within the same industry compared to the UK government.

This means that for Hewlett-Packard to acquire a firm which is not located in the domestic market such as 3-Comm, the government is intensely .According to Marsden (2007, para. 3), there is a probability of 23.8% of government intervention in a merger and acquisition in US compared to 1.7% in intervention in the UK.

Reasons for increased concern by consumer advocates

In an effort to attain its profit maximization objective via formation of mergers and acquisition, there is a high probability of firms involved being involved in unfair market practices. For example, the firms may disseminate deceptive market information regarding its products and services with the objective of developing customer loyalty (Bloomberg Business Week, 2010).

This is one of the factors which have necessitated increased customer advocates. In addition, formation of merger and acquisition may result into formation of a monopoly within a particular industry. One of the ways through which this can be attained is by developing a large capital base thus creating a barrier to entry.

This arises from the fact that small scale entrepreneurs who may want to venture the industry will be required to have a substantial amount of capital base. For example, there is a high probability of a firm with a capital base of $ 16 billion influencing the market.

For example, it will be difficult for other small firms to venture the industry. The resultant effect is that the new firm will have an upper hand in controlling market prices for the goods produced since the force of demand and supply which is paramount in the determination of market prices will be eliminated.

Therefore, there is a high probability of the new firm established exploiting consumers by setting prices at a relatively high point than the existing market price. This can be achieved via lessening competition. The price the consumers pay for the products and services may not be reflective of the value received upon consumption.

From the example, it is evident that there is an ethical dilemma in relation to the benefits and cost associated with the merger. The merger may benefit the customer via creation of high quality goods. However, the new entity formed may have an influence on the pricing of the products. The resultant effect is that the firm might become a monopoly.

Pitfalls customers might deal with as a result of merger and acquisition of large companies

Production of low quality goods

Considering the competitive and dynamic nature of the telecommunication industry, ensuring that the customers attain a given level of satisfaction is paramount. One of the ways through which this can be attained is by ensuring that the firm’s products are of high quality. Formation of merger and acquisition may result into a decline in the quality of products manufactured in the short term. This has a negative impact customer satisfaction.

Formation of a merger and acquisition by two large companies has the effect of limiting competition in the industry due to the domination by the new entity formed. This coupled with decline in the quality of products reduces the choices available to customers. There is a strong correlation between product quality and the level of customer satisfaction (Buono &Bowditch, 2003, p. 234).

Considering the fact that Hewlett-Packard is one of the major manufacturers of telecommunication and information technology products, its merger with Compaq would result into a decline in diversity of telecommunication and information technology products and hence a decline in customer satisfaction.

On the other hand, there might be a difference in the level of commitment between the two firms. For example, as a result of the acquisition the quality of the new entity’s product may be compromised due to lack of attainment of a criterion on the standard production criteria between the two firms (Yun-Qing, 2009, para.8).

Reduction in the level of customer service

According to Bowditch and Buono (2003, p. 234), merger and acquisition involving two large firms may negatively affect the customer service. There is a high probability of the two firms involved in a merger and acquisition failing to attain the desired synergy. One of the core factors which might contribute to this is existence of cultural differences between the two firms.

Due to existence of cultural differences in between Hewlett-Packard and 3-Comm Company, it may take a considerable duration of time before the two firms become fully integrated.

Existence of cultural differences between the two firms involved in may limit the firm’s commitment in offering quality service to the customer. This arises from the fact that the consumers may take a considerable duration before they are conversant with their roles.

Conclusion and recommendation

Despite the benefits associated with mergers and acquisition, there are a number of challenges which may be experienced. Merger and acquisition involving two large companies may affect the quality of products produced by being involved in unfair market practices (National Archives and Records Administra, 2010, p.413). This may result into lack of customer satisfaction.

In addition, cross-border mergers and acquisitions may have an impact on the effective operation of a market. This arises from the fact that the new entity formed may be a monopoly which might lessen competition in the market. This may influence the effectiveness of market forces in the determination of price.

In order to overcome these challenges, firms involved in cross-border merger should undertake a comprehensive analysis of the political, legal and social differences existing between the two countries. In addition, these firms should conduct an analysis of cultural-differences existing between them. This will help in determining the cultural-fit between the two firms.

Reference List

Bloomberg Business Week. (2010). Why customers hate mergers. Retrieved October 18, 2010 from
http://webcache.googleusercontent.com/search?q=cache:DzxQQzZlZw0J:www.businessweek.com/magazine/content/04_49/b3911074_mz017.htm+pitfalls+that+consumers+might+have+to+deal+with+when+2+major+companies+merge%3F&cd=1&hl=en&ct=clnk&gl=ke&client=firefox-a

Buono, A. & Bowditch, J. (2003). The human side of mergers and acquisitions: managing collisions between people, cultures and organizations. New Jersey : Beard Books.

Mardsen, T. (2007). Cross-border mergers and acquisition: the Asian perspective. Retrieved
October 18, 2010 from
http://webcache.googleusercontent.com/search?q=cache:OGLqU33ibqQJ:www.nortonrose.com/knowledge/publications/2007/pub11909.aspx%3Flang%3Den-gb%26page%3Dall+political+instability+in+italy-+a+challnge+to+mergers+and+acquisitions&cd=3&hl=en&ct=clnk&gl=ke&client=firefox-a

National Archives and Administra. (2009). The United States government manual 2009-2010.

New York: Government Printin Office.

Yun-Qing, C. (2010). HP-3-Com merger heats up Cisco competition. Retrieved October 18,
2010 from
http://www.zdnetasia.com/hp-3com-merger-heats-up-cisco-competition-62059295.htm

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