The strategies behind mergers and acquisitions can vary. A company considering buying another company should analyze the reason for the acquisition. Management's business strategy must be aligned with the acquisition. There must be real advantages to acquiring another company. These advantages can include gaining new technologies or products, adding size or volume, or even eliminating competitors. I will examine the strategy behind three recent acquisitions and the financial outcomes of these acquisitions.
On November 18, 2005, SBC closed its acquisition of AT&T for $16.9 billion. The strategy behind this acquisition came down to scale and scope. As Edward Whitacre, CEO of the new at&t puts it, "It's still about scale and scope," and "it's about owning the assets that connect the customers" (O'Connell, November 7, 2005). The competitive market has forced consolidations of many in the telecommunications industry. The Internet and wireless has spawned a whole new player in the marketplace. For regional phone companies to compete they must control the lines that enter the people homes. Control of these lines will allow the service providers to offer bundled services such as broadband, telephone, and television. By offering bundled services, at&t will be able to compete with the Internet telephone companies such as Vonage.
The combination of the company is expected to translate into a net present value of $15 billion in savings. The former AT&T shareholders received 0.77942 shares of SBC common stock for every share of AT&T, which translated into $18.41 per share. AT&T investors also received $1.30 a share in a special dividend (Kawamoto, January 31, 2005).
On January 6, 2006, Verizon completed its acquisition of MCI for $8.6 billion; almost half the price ...