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Electrolux tried to gain market share, reduce costs (when Electrolux acquired
Granges), diversify production, and hold to different national standards.
When company takes over another company it may have some problems. This
happens because takeover companies are incorrectly estimated, a deal upsets
investors. Also, there’s a possibility of losing key personnel and company may have
incompatibility of management styles, structures, and culture. For example, Electrolux
have problems with estimating acquired companies and management it (Electrolux
holds too much companies).
I guess Electrolux did the right thing, because after purchased company can use
aluminum, copper, plastics, and other materials by Granges in Electrolux household
appliances. Exactly it is risky deal, but I think in future it saves company from
competitors which wanted to bought Granges too.
# 2 Vodafone
(February 3, 2000, RBC) Vodafone AirTouch and Mannesmann agree to merge
The British company Vodafone absorbs the German concern Mannesmann AG for $ 190.68
billion, RBC reports. As a result of the transaction, Mannesmann will receive 49.5% of the
shares of the combined company. For a long time, both companies worked in the field of cellular
telephony in the markets of Germany, France and Italy. According to European experts, the new
company, which will become the largest in the world, will have 30 million customers in the
telecommunications markets of 15 countries.
Mannesmann Executive Director Klaus Esser, in accordance with the new agreement, will leave
his post in the company. The new company will be led by Chris Gent, the current chief of
Vodafone.
According to BBC News, Vodafone and the French conglomerate Vivendi plan to create a
powerful European Internet portal and build an extensive intercontinental telephone network.
According to some reports, Mannesmann exposes the suspension of the alliance Vodafone and
Vivendi as a condition for the continuation of a friendly association.
(August 8, 2001, Financial Times) Vodafone is organizing a merger of four J-Phone
companies
On Monday, the president of Vodafone Group, Christopher Gent, said that in order to increase
competitiveness, his company, as the main shareholder of the four telecommunications groups, is
organizing their merger, which may occur in the fall.
At a press conference in Tokyo, Gent announced that having a stake in Japan Telecom, which
owns three regional subsidiaries of J-Phone, Vodafone will strive to ensure that all four groups -
J-Phone Communications, J-Phone East, J-Phone West and J-Phone Central - charged an
identical monthly fee by the end of the year. Vodafone also hopes that it will be able to raise its
percentage of shares in Japan Telecom to 45% by the end of August, with the result that the UK
mobile service provider will become Japan Telecom’s largest shareholder.
J-Phone Communications is the parent company of the three other J-Phone firms. It owns more
than 50% of the shares of each of these three firms. Apparently, Vodafone and Japan Telecom
believe that the merger will help J-Phone to provide more serious competition to NTT DoCoMo,
which is the leading provider of mobile services in Japan. Vodafone is not going to change the
corporate name of the J-Phone, but rather, on the contrary, wants to further promote the existing
corporate brand, and, as Ghent said, “the strategic merger of the J-Phone branches today is a
priority area of work”.
(May 31, 2005, Bloomberg) Vodafone has swallowed up two Eastern European operators
The British telecommunications company Vodafone Group, after receiving the approval of the
European Commission, bought two operators - the Czech Oskar Mobil and the Romanian
MobiFon. The purchase of a 79% stake in MobiFon allowed Vodafone to consolidate 99% of the
operator’s share capital. The number of shares purchased by Oskar Mobil is 100%. The total
amount of the transaction is $ 3.5 billion. The buyer also assumes debts in the amount of $ 950
million. Both of the purchased operators were the main assets of Canadian Telesystem
International Wireless (TTW).
(May 31, 2006, RBC) The sad record of Vodafone. Its loss exceeded $ 41 billion
Yesterday, Vodafone, the world's largest mobile operator in terms of revenue, presented the
results of the fiscal year ended March 31. Net loss amounted to 21.9 billion pounds ($ 41
billion). A year earlier, Vodafone had a net profit of 5.6 billion pounds ($ 12 billion). The
company's revenue from current operations (excluding $ 16 billion from sales in March of the
Japanese division) grew by 10% compared to last year to 29.35 billion pounds.
The gigantic loss is caused by the write-off of assets worth 23.5 billion pounds. Without this,
Vodafone would be in profit. Vodafone acquired these assets in a series of acquisitions in the
wake of the technological boom in 1999–2000. Former CEO Christopher Gent turned the
company into a world leader by spending $ 300 billion in acquisitions in six years. Among them,
the purchase of German Mannesmann for $ 186 billion, held at the peak of the boom in 2000.
Vodafone has to pay for this “buying rush” over the years - since 2001, only last year has been
profitable for it.
All these years, the company's losses amounted to tens of billions of dollars, and the company
lost a total of 109.4 billion dollars. The current write-off includes the revaluation of
Mannesmann assets.
The loss of Vodafone did not upset investors: shares rose by 3.6%, although by the end of the
day the growth had faded away. “The numbers largely correspond to what the market was
waiting for,” Jonathan Grukok, an analyst at Oriel Securities, wrote in a report. - Affected such
factors as the deteriorating market situation in the UK and Italy, as well as increased competition
in Germany. “Despite a number of strategic problems, Vodafone’s position gives grounds for
optimism,” says Simon Weeden, an analyst at Goldman Sachs. “The company sets clear cost
objectives, dividends are increasing,” says Weeden. Vodafone has promised to increase
dividends by 49%.
Arun Sarin, who replaced Ghent in July 2003, spent about $ 20 billion on acquisitions. But
investors are increasingly expressing dissatisfaction with Vodafone’s strategy. This is partly due
to the slowdown in business growth in developed countries. Many also believe that Vodafone is
significantly overpaying, buying assets in developing countries. One of the last such deals is the
acquisition of the second-largest Turkish operator Telsim for $ 4.55 billion.
On the eve of Sarin outlined the main directions of the Vodafone strategy. In developed
countries, he has pinned great hopes on the introduction of new networks, which can increase the
data exchange rate by more than 100 times and expand the range of complex services, which, in
addition to cellular telephony, include Internet access and the integration of wireless and fixed
communications. It is expected that the new services in three to four years will provide about
10% of Vodafone sales.
(May 30, 2006, BBC) The collapse of Vodafone: EUR 32 billion in losses
The largest cellular operator in the world, the British company Vodafone Group, announced a
net loss of 32 billion euros for the 2005-2006 fiscal year ended March 31, 2006. The company
associates poor financial indicators for the reporting period with the revaluation of the value of
some assets, mainly in Germany. Recall that in February Vodafone Group announced the write-
off of the book value of foreign assets totaling $ 40–49 billion. This step is due to a decline in
revenue growth rates, which is projected for the 2006–2007 fiscal year ending March 31, 2007.
The Vodafone report notes that the reduction in book value will affect mainly the German
division of Vodafone Germany, as well as the Vodafone Italy and possibly the Vodafone Japan.
The Vodafone report also noted that the financial performance forecasts for the fiscal year 2006–
2007 correspond to current market estimates. At the same time, according to analysts of
Vodafone, next year the growth rate of revenue will slow down from 6.5% to 5% due to the fact
that increasing competition forces lower prices.
Questions
1. Describe the types and motives of Vodafone M&A.
According to text, Vodafone were conducted more friendly (especially in the early
stages) takeovers. The main reason is to increase market share through horizontal
expansion.
2. Can Vodafone mergers be considered effective?
They can be identified as effective in both short (because of immediate increase of
company price) and long run (as clear instrument of potential growth). But as we
can see further, some Vodafone mergers can be ineffective in the medium run
because of revaluation of purchased companies’ assets.
3. What do you think are the reasons for it?
The main cause of ineffectiveness in medium run is linked with a strive of company
to gain a big rate of growth in short run.
4. What are the main reasons for the effectiveness of M&A’s?
Effectiveness can be achieved by ability to organize optimized production on new
facilities in a quick time.
5. What are the main reasons for the inefficiency of M&A’s?
The main reasons of inefficiency can lay in overestimation of acquired company
potential or in excessively high expenses for making a deal.