Mergers And Acquisitions In Telecom Services Accounting Essay

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Mergers and acquisitions (MandA) have been used as instruments for firm growth for many years. In recent years mergers & acquisitions are increasingly becoming a trend in the corporate world but in 2008 the volume of mergers & acquisitions hit a three year low, totalling 2.89 trillion dollars according to Thompson Financial Reports (www.doingbusiness.ro/en)

A merger can be defined as "a combination of two companies to form a new company, while an acquisition is the purchase of one company by another with no new company being formed" (www.Investopedia.com).

Telecommunication industrydeals with variousforms of communication mediums such as mobile phones, fixed line phones, as well as Internet and broadband services. In developing countries mergers and acquisitions are becoming popular because it's the easiest and fastest way to growth. Sri Lanka is a developing country; the competition is severe there among telecom companies. To overcome this Sri Lanka Telecom (SLT) which is a fixed line operator acquired Mobitel, mobile phone network operator in 2002.

Sri Lanka Telecom Corporation formed in 1991, DLT converted. Sri Lanka Telecom is the largest telecom service provider with an annual turnover of Rs 40 billion. It's one of the most precious blue chip companies in the country. The major share holder of the company is the government of Sri Lanka with 49.5% and Global Telecommunications Holdings N.V of Netherlands owns 44.9% stake in Sri Lanka Telecom whilst the balance shares are remaining with the general public. Sri Lanka Telecom now fully owns six subsidiaries. The vision of SLT is to lead Sri Lanka to become the hub of telecommunications in South Asia and the mission is to anticipate and fulfil the communications requirements of all sectors of the nation, in a service oriented work ethic which will provide total customer satisfaction through the most modern telecommunication facilities.

Mobitel is one of the leading mobile service providers in Sri Lanka. Since the acquisition of Mobitel by Sri Lanka Telecom in 2002, it has grown in bounds and leaps and is now with equivalence technology in latest telecommunications industry in the country. Mobitel is the first mobile operator to launch super 3.5G HSPA technology in South Asia (www.mobitel.lk). The vision of Mobitel is to lead Sri Lanka towards an info-com and knowledge rich society through our service offerings & the mission to care, share & deliver

Research Aim

There were lot of mergers and acquisition in the telecom service industry. Acquisition of Mobitel by Sri Lanka Telecom was a vital acquisition for both companies. The aim of this project is to evaluate the factors affecting mergers and acquisitions in the telecom industry.

Research Objectives

  1. To identify main reasons for mergers and acquisition in telecom service industry.

  2. Individuals view on earlier mergers and acquisition in telecommunication services.

  3. To conclude, critically evaluate financial and non financial performance information, weather acquisition of Mobitel by Sri Lanka Telecom was successful.

Once the above objectives have been answered, it will provide a complete and real knowledge background for me to critically evaluate the mergers & acquisitions in telecom industry.


2. Literature review

This chapter will examine the current literature on mergers and acquisition. This will provide understandable and short argument of theories and perspectives on the issues relating to mergers & acquisitions in the telecom services industry. Links will be made with the aims and objectives of the research project.

Telecommunications industry is one of the most viable and quickly developing industries and it is regarded as an indispensable element of the worldwide utility and services sector

The number of mergers and acquisitions in telecom Sector has been increasing significantly. Mergers can be three types namely horizontal, vertical and conglomerate. The mergers and acquisitions in telecom Sector are regarded as horizontal mergers simply because of the reason that the entities going formergeror acquisition are operating in the same industry, which istelecommunications industry. Acquisition is generally seen as part of the process of growth of the firm but it may also be a means of rationalising the structure of declining industries.

Mergers and acquisitions can be divided into three stages: the pre-merger stage, the actual deal stage and the post-merger stage. Merger or Acquisition has been regarded as the result of the success of pre-merger decision making and post-merger implementation (Pablo, 1994). The expected benefit of the mergers & acquisitions will only be achieved if the post-merger integration activities are given priority based on their potential for value creation as sketched during the pre-merger stage (Chanmugam, 2005).

Why some mergers and acquisitions often meet to fail expectations. A number of studies showed the common reason for mergers and acquisitions failure are; over estimation of synergy, the slow pace of post merger integration and a poor strategy (Donald, 2003). The lack of post-merger success increasingly being attributed to human factors (Covin, 1996), the managers rely on traditional stories such as quick merger will prevent lost productivity, a new and improved corporate culture will automatically be established rather than facts in making mergers & acquisitions decisions.

(Gaughan, 2002) Firms merge or acquire in order to grow quickly, hopes to practice economic gains as a result of economies of scale. A larger firm as a result have better access to capital markets which will result in lower cost of capital. (Brian & Mike, 1987) Financial gains may be achieved by redeploying excess cash or reducing risk through diversification, so that the financial performance and stability of the new firm is improved

In majority of developed and developing countries around the world, mergers and acquisitions in the telecommunications sector have become a necessity (www.economywatch.com). This kind of mergers & acquisitions will also create job opportunities. As major part of SLT is owned by the government of Sri Lanka the motive behind the acquisition may be creation of jobs.

Mergers and acquisitions have negative effects as well; major effect is the monopolization of telecommunication products and services which leads to several other negative consequences for the consumers. However government of those countries take appropriate steps to control these problems.

The acquisition of an existing company might have a negative effect on the business's reputation within that market, if the acquisition was not done professionally with due diligence (Warren & Julio, 1990). Due diligence is a 3rd party examination of the transaction it examines operations, financials, tax matters and asset valuation. Information obtained during due diligence can uncover potential deal breakers such as management capabilities and incentives, weak cash flows, weak strategic position etc. The cost of an acquisition will be high usually and have to pay all at once. The contractors and the suppliers may have to be renegotiated (Warren & Julio, 1990).

Mergers & acquisitions activities tend to improve aggregate shareholder value. Shareholder value analysis is a technique for establishing value creation by discounting future cash flows using cost of capital. This is done by estimating the total net value of a company and dividing by the value of shares. Mergers & acquisitions activities are likely to increase the share prices if the discounted cash flows exceed the cost of acquisition (Keenan, 1982). However, successful acquisitions can fail when the management does not communicate with share holders regarding the value, the value may never get manifested in the company's stock price.


3. Research Methodology

This chapter focuses on research methods and research design used for this project. Research design provides a framework for the collection and analysis of data (Bryman & Bell, 2007). Research methods are a set of procedures and techniques for gathering and analysing data (Strauss & Corbin, 1998). It can involve specific instrument, such as a self completion questionnaire or a structured interview, or a participant observation.

I decided to collect both primary and secondary data using quantitative and qualitative approaches. Quantitative method involves analysis of numerical data on the other hand qualitative data consists of verbal and more in depth information

Primary Research

In this project questionnaire will be given to 40 staffs working at both Sri Lanka Telecom and Mobitel head offices in Sri Lanka. I will use an external agent to distribute the questionnaire. The questionnaire will focus on what factors made both companies to involve in the acquisition and factors contributed to success of Mobitel after acquisition.

Secondary Research

The research topic is mainly derived from secondary research. Secondary data consists both quantitative and qualitative. Secondary information consists of sources of data and other information collected by others and archived in other form these sources include journals, newspaper articles, book, databases etc (David & Michael, 1993). The advantage of using the secondary data is time efficient and cost efficient and also almost always the starting point for primary research. Academic data can be obtained from electronic databases, journals, books and academic magazines such as The Economist through library website. However comparing journals and articles are not easy due to limited recent studies obtainable. As the secondary date collected by others for their own purpose, so the main points will be different or not be included (Bryman & Bell, 2007)

Research Philosophy

Research Philosophy reflects the way in which the researcher perceives the world (Saunders, 2006). There are three different aspects of research philosophy positivism, Interpretivism and realism. This research will be on positivism perspective as previous research and theories are to be used in order to obtain further knowledge on mergers and acquisitions

Research Approach

There are two different research approaches can be used when conducting a research, Deductive and Inductive approach. Deductive approach uses existing theories to develop a hypothesis and then creates a research strategy in order to test this hypothesis. Inductive approach which entails the collection of data and develops a theory based on data analysis (Saunders, 2006). Deductive approach suits best for this research because it has access to number of literature. The researcher can relate the data collected with previous theories.

Research strategy

The research strategy should enable the researcher to answer the research question and meet the research objective (Saunders, 2006). I decided to collect primary data through the use of questionnaires which is quick and cheap. The researcher will use open and closed question. . It enables the researcher to collect both descriptive and exploratory findings. The results from close ended questions will be quick and to analyse and open ended questions will let the respondents to state their views. Primary research can pose as justification for any secondary research found.

Another method of primary research is interviews although from interview more in-depth descriptive responses are possible. However, I decided not to use this method due to cost and time limitations and also the researcher felt the use of interviews may have resulted in more biased results.

Limitations

The time factor is the limitation for this research because designing and distributing the questionnaires will take time as I distribute questionnaires through a 3rd party and the response rate may be low. Receiving all results also time consuming. There will be difficulty in finding information which happened long time ago and the results of this methodology would be different if completed in a different economic time.

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Proposal Due

 

                                   

Background

                                     

Literature Review

                                     

Questionnaire Design

                                     

Questionnaires

                                     

Secondary Research

                                     

Data Presentation

                                     

Data Analysis

                                     

Discussion

                                     

Conclusion

                                     

Finalising

                                     

Submission

                                     

4. Project Timetable

5. References

Books

  • Bryman, A and Bell, E (2007), Business Research Methods, 2nd Edition, Oxford University Press

  • David, W. S and Michael, A.K (1993), Secondary Research: Information Sources and Methods, 2nd Edition. Sage Publication

  • Donald, D (2003), Mergers, Acquisition and Other Restructuring Activities, 2nd edition, Academic Press

  • Brian, C and Mike, W (1987), The Logic of Mergers: The Competitive Market in Corporate Control in Theory and Practice, The Institute of Economic Affairs

  • Keenan, M and White, L.J (1982), Mergers and Acquisitions; Current problems in perspective, Lexington Books

  • Saunders, M (2006), Research Methods for Business Students, 4th edition, FT Prentice Hall

  • Porter, M.E (1985), Competitive analysis. New York: Free Press, 1985

Websites

  • John, O (2006) Mergers& Acquisition (www.associatedcontent.com/article/86755/mergers_acquisitions.html?cat=3)

  • www.investopedia.com/university/mergers/mergers1.asp

  • www.economywatch.com/mergers-acquisitions/international/telecom-sector.html

  • www.mobitel.lk

  • www.slt.lk

  • http://www.doingbusiness.ro/en/business-news/9749-biggest-mergers-and-acquisitions-in-2008.html

Journals

  • Strauss, A. L. & Corbin, J. (1998) Basics of qualitative research: techniques and procedures for developing grounded theory, 2nd edition, Sage.

  • Examining Mergers and Acquisitions (2009), Cornell Hospitality Quarterly.2009; Vol 50, 138-141

  • Yaakov Weber, 1996Corporate Cultural Fit and Performance in Mergers and Acquisitions, Human Relations, Vol. 49, No. 9, 1181-1202 http://hum.sagepub.com/cgi/content/abstract/49/9/1181

  • Warren, D and Julio Herrera (1990), International Mergers and Acquisitions, The Journal of Business Strategy, July/August

  • Gaughan, P. A (2002), Mergers, Acquisitions and Corporate Restructuring, 3rd Edition. New York: John Wiley & Sons, Inc.

  • Chanmugam, R., Shill, W., Mann, D., Ficery, K and Pursche, B (2005), The intelligent clean room: Ensuring value capture in mergers and acquisitions, Journal of Business Strategy 26 (3): 43-49.

  • Pablo, A. L. 1994. Determinants of acquisition integration level: A decision-making perspective. Academy of Management Journal 37 (4): 803-36.

  • An Investigation of Post-Acquisition Satisfaction with the Merger Covin et al. Journal of Applied Behavioral Science.1996; 32: 125-142 http://jab.sagepub.com/cgi/content/abstract/32/2/125

  • Warren D. Kissin and Julio Herrera (1990), International Mergers and Acquisitions, Financial Strategy, July/August 1990

  • Randy MacDonald (2005), A template for share holder value creation on M&A's, Emerald Group Publishing Limited, Vol 21 NO. 5 2005, pp. 3-10

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