Unit 2 Mergers and takeovers

Lead-in

Work with a partner to discuss the following questions:

1. How do you understand two terms: “merger” and “takeover”? Could you explain the difference between them if any?

2. Why do companies undertake mergers and takeovers?

3. Do you think that these procedures can be the only way out for a company if it is on the verge of bankruptcy?

4. What other reasons can you suggest for companies to merge?

5. Think over the advantages and disadvantages of these procedures for companies running them.

Useful language

to get on the bandwagon	примкнуть к стороне, имеющей перевес
takeover	приобретение компании посредством покупки всех акций или большей их части
attributable value	чистая стоимость
quondam rival	бывший конкурент/соперник
concomitant	сопутствующий
particulars	подробные отчеты / отдельные записи
acquisition	приобретение / поглощение компании
hedge	хедж (срочная сделка, заключённая для страхования от возможного изменения цены)
bull market	бирж. рынок, характеризующийся тенденцией повышения цен; рынок «быков»
bear market	бирж. рынок, характеризующийся тенденцией падения цен, рынок «медведей»
calls	взносы в оплату акций
trusteeship	попечительство / управление по доверенности
due diligence	должная проверка
leveraged buy-out	выкуп в кредит
poison pills	“отравленные таблетки”: любые методы борьбы с враждебным поглощением компании
syndicate	синдикат, консорциум
daunt	устрашать, запугивать
mark-up	повышение цены, наценка
subsidiary	дочерняя компания, филиал
a minority stake	владение менее чем 50% акций
to rank third	занять 3-е место
backer	сторонник

Reading

1. Read the following text and be ready to summarise the main idea. Text 1. Merger Mania As Telecoms Goes Multimedia

Hardly another business sector has seen the scale of mergers and acquisitions activity as the telecommunications industry. Barely a week goes by without news of another purchase, fusion or alliance in the sector. And the process has been going on for some time. Observers could be forgiven for asking how much longer this corporate feeding frenzy can go on.

The current signs are that this trend may still have quite some way to go. In the present year alone there have been major fusions between carriers - such as Qwest and US West in the USA, Vodafone and Air Touch in a transatlantic UK/US deal and Deutsche Telekom and One-2-One within the European Union. There have also been a number of examples of partnerships turning into fully fledged acquisitions such as the UK's Cable & Wireless and Japan's IDC, or the UK's BT buying out its mobile operator Cellnet partner, Securicor.

And there have been unfriendly takeovers such as the largest deal to date in Europe, computer maker Olivetti's acquisition of Telecom Italia, Italy's largest carrier with major fixed and mobile communications networks. The result of the acquisition is that Olivetti is now Europe's third largest carrier by revenues. A remarkable fact when you consider that ten years ago it wasn't in the carrier business at all and even a few years ago its interests were restricted to data and mobile communications. It is also a good indicator of just how volatile the once calm telecommunications business has become.

While Olivetti's acquisition of Telecom Italia earlier this year was an example of a manufacturer acquiring a carrier (although in today's fast moving telecommunications world terms such as manufacturer and carrier are arguably outdated), there have also been examples of carriers acquiring manufacturers. BT, for example, bought Mitel in 1985, although the alliance floundered and BT sold the company in 1990. Carriers have on the whole looked to mergers and acquisitions with other carriers to fulfil their business objectives.

At around the same time BT, for example, bought ITT Dialcom, the electronic messaging arm of ITT. This eventually evolved into what became BT's Global Network Systems business. BT also set up a joint venture with Securicor to create Cellnet, the UK's second largest mobile phone network operator. This alliance has only just come to an end with the purchase by BT of Securicor's 40% stake.

Meanwhile Deutsche Telekom has bought Cellnet rival and former Cable & Wireless operating unit One-2-One. This followed Deutsche Telekom's earlier purchase of a minority stake in UK long distance fixed network carrier Energis.

All of the above could be classed as aggressive alliances. There have also been some protective ones, however. In Europe a number of major alliances have been struck between national operators.

Unisource is the name of the alliance originally struck between PTT Telecom of the Netherlands and Telia of Sweden, with the Swiss PTT and Spain's Telefonica joining later. It has since run into difficulties. BT worked hard to produce an alliance with Deutsche Telekom but the effort fell apart when the latter insisted on the adding of France Telecom to the alliance as an equal partner.

Instead an alliance between Deutsche Telekom and France Telecom came about - Atlas - with BT left to find its partners elsewhere.

The Atlas alliance was successful for a few years - which included the taking of stakes in each other's companies, the acquisition of major stakes in US long distance carrier Sprint and the setting up of Global One, a one stop shopping global carrier for business customers. But it too has run into difficulties. Deutsche Telekom's attempt to buy Telecom Italia (it had all but concluded the deal before it was ousted by Olivetti) earlier this year led to a falling out with France Telecom leaving the future of Atlas and the two companies' participation in Global One and

their stake in Sprint in doubt.

The Atlas-Sprint alliance was in part a response to BT's move to team up with US long distance carrier MCI. This also proved to be a particularly painful experience for BT, although the pain came more in a sudden rush rather than being long and drawn out. BT had struck a deal in principle and got almost all the way through the regulatory hurdles to merge with MCI - it had even swapped key staff - when US newcomer Worldcom snapped up MCI from under BT's nose.

The high price investors were willing to pay for Worldcom shares was a factor BT had not reckoned with. Perhaps more worrying for the status quo everywhere, it may have been an indicator that the old order of market dominance by the former monopoly holders had truly come to an abrupt end. BT's scope for response, however, was limited. It sought the relative safety of an alliance with AT&T.

In fact, it has been the newcomers which have been making much of the running in recent alliances.

Earlier this year UK mobile network operator Vodafone bought West Coast mobile network operator Airtouch - formerly the mobile arm of regional carrier Pacific Telesis - to create the largest mobile network operator in the world. Perhaps more significantly, however, the deal also made it the largest telecommunications company in the UK by capitalisation. This must have come as a blow to the ego of BT, the former national carrier which was for a time the largest telecommunications operator in Europe by capitalisation.

Transatlantic alliances are by no means exclusive to the northern parts of the two continents, however. Spain's Telefonica, for example, has pursued a very successful policy of investing in and acquiring network operators in South America, notably in Argentina and in Chile. And there have also been European-African alliances - France Telecom and Sonatel in Senegal, for example. And European Asian alliances - such as Cable and Wireless and IDC in Japan.

As the scale of the impact on telecommunications of two great technology trends - mobile and Internet - becomes clear, there have also been a number of alliances designed to direct and speed up the introduction of new technologies.

Ericsson, Motorola and Nokia, for example, have been at the heart of a number of technology alliances which they hope will shape the future of mobile communications. These can vary in format from loose partnerships to joint ventures.

The grand daddy of all these was of course GSM - which embraced many more companies than just the three mentioned above. But all or some of the three have been key in the creation of Bluetooth (a wireless interface designed to bring wireless connectivity off of the streets and indoors), Symbian (an operating system and user interface for future generations of mobile terminals) and WAP (the Wireless Access Protocol, a means of connecting the worlds of mobile communications and the Internet). In a parallel move in the USA computer giant Microsoft and CDMA mobile communications pioneer Qualcomm have also teamed up to find ways of linking the worlds of mobile communications and Internet.

Technology know-how has also been behind a set of alliances between telecoms manufacturers and Internet equipment makers. Last year Nortel acquired Bay Networks and Lucent joined up with Ascend Communications. There were also a number of lesser deals along similar lines by other companies. And many more are expected. The telecommunications world is waiting with baited breath to see who, if anyone, captures Internet giant Cisco as its prize - or perhaps which telecommunications equipment maker Cisco will capture.

There is no sign of a let-up in merger and acquisition activity in the telecommunications and related industries. As the world progresses towards an Information Society, ownership of the telecommunications infrastructure is being seen as an increasingly valuable asset. And at the same time manufacturers are being seen as profiting from investments in that infrastructure so they also make appealing targets to investors.

Technology or know-how acquisitions are likely to remain prominent over the next few years, as might rationalisation of equipment suppliers and convergence alliances. There could even be combinations of all three as outsiders such as Microsoft use the power of their purses to become major league insiders – as indeed it is already doing as it consolidates its position in Europe’s nascent cable market. There are also likely to be more mergers and acquisitions among carriers – Telecom Italia came very close to being acquired by Deutsche Telekom.

In fact the only thing which looks likely to rival mergers and acquisition activity in telecommunications is the rate of creation of new telecommunications companies. As fast as the old names may disappear, new ones will be created.

In fact, the overall number of companies in the sector will most probably go up, rather than down.

The past few years have shown that mergers and acquisitions are easier on paper than in practice. The number of unsuccessful - or less successful than hoped for - alliances easily outnumbers the successful ones. But the mere fact that there have been successful ones shows that mergers and alliances can be made to work. They just require the most careful of planning, meticulous execution and a lot of luck. These are exciting times indeed in the telecommunications industry.

II. Read text I carefully and choose the correct answer to the following questions:

1. The first merger of which company was weak and broke after 5 years?

a) Telecom Italia

b) GSM

c) BT

d) One-2-One

2. Which of the companies ranks third by the total annual income?

a) ITT Dialkom

b) Olivetti

c) BT

d) Deutsche Telecom.

3. The mobile network operator Airtouch in past years belonged to:

a) Vodafone

b) GSM

c) Pacific Telesis

d) Telia

4. Which of the following statements is true about the BT company:

a) It merged with Securicor to create the UK’s second largest Internet network operator.

b) Its first acquisition was really successful and profitable

c) It merged three times with different companies

d) BT lost MCI because of a new US company

5. Which of the following might be the next successful merger?

a) Telecom Italia and Deutsche Telecom

b) France Telecom and Sonatel in Senegal

c) Microsoft and CDMA

d) Cable and Wireless and IDC