The term ‘merger’ is often misunderstood and misused, by applying freely to any and every sort of business combinations. It has, though, got a very specific inference. A merger essentially denotes a combination of two or more firms that are into same business in which just a single firm survives while the other organization or entities go out of survival. In a merger, the enduring firm obtains the assets and liabilities of the other organization(s).
1. For the corporation that has acquired another company, merged with another company, or been acquired by another company.
For the above question, the two corporations that have been chosen are AT & T and T-Mobil. The merger of both these companies happened in the year 20111 making AT & T the largest wireless carrier of America competing with the major players in the Industry – the Verizon Wireless. The benefits that T-Mobile experience due to the merger was that all their debts were reduced with the acquisition of the stocks of AT & T at a value price. The focus of AT & T after the acquisition is to increase its network as well as coverage while also working on the expansion of their technology of long-term evolution technology deployment. It is important that AT&T develops new technologies and new strategies for manufacturing new devices and serve their customers better if they want to be in the business and industry for long.
T-Mobile was at a stage at one point were masters of technology when mobile communication was introduced and T-Mobile was a rage. At that point of time, they sold what was selling – all the basic features like texting, voice mail, free talk time over the weekend, among other basic telephony features made them a consumer’s first love. The initial success was so overpowering that the entire company focused on garnering revenues and they totally forgot to keep an eye on the external environment, especially the developments on the technology. So, when wireless data services came in, the company was taken completely unawares. As customers got used to mobile data, T- Mobile was found unable to service this requirement and hence began losing their customer base. They desperately changed and adapted to newer technologies but were way behind their competition. AT & T, Sprint, and Verizon who were the major competitors of T-Mobile were enamouring their customers with newer technology, faster internet access, advanced devices, and were way ahead. As T- Mobile introduced advanced technology, they managed to regain some of their lost customers. They were so much behind the 3G-race; they desperately needed to do something for being a competitive advantage. They realized that the only way to be one-upped on competition was to get 4G and were the first to introduce 4G in the United States. However, competition caught sooner than expected and they began losing their business again. The primary nature of the telecom industry is that the technology improves extremely rapidly and companies need to be on their feet to adapt irrationally fast. This was an opportunity for AT & T and T-Mobile, if merged with AT & T; the joint entity would become the largest wireless communication company in the United States. AT&T saw a great opportunity in T-Mobile and the merger would be a marriage of convenience. For AT & T also it would be a winning preposition it would make them the largest company in the United States.
2. For the corporation that has not been involved in any mergers or acquisitions
“Publix Super Markets, Inc. and all of its wholly owned subsidiaries are in the prime business retail food supermarket operations in various parts of United States like Florida, Georgia, South Carolina, Tennessee, and Alabama”. This organization is into the sales of grocery, along with dairy products, bakery foods, seafood, as well as health and beauty care products, general commodities, pharmacy, floral and a wide range of other products and services. The company also has on its shelves, a broad range of advertised private labels as well as unbranded merchandise. The company handles both food and non-food products, sourcing it from a wide range of vendors and are either procured centrally or delivered to the stores via company logistics and at times the vendors undertake to deliver directly.
The merger between Publix Supermarkets and BI-LO Supermarkets will be technically a consolidation merger that will help access a larger customer base and offer cross discounts and coupons. The acquisition will help both organizations leverage relationships with their individual customer bases and help each company learn better parts of customer service from the other. This will definitely end up in both companies being able to access larger customer bases thereby directly impacting sales, eventually resulting in revenue growth for both the companies and thus enhancing shareholder value for both the organizations.
3. For the corporation that operates internationally
An organization has its origin in an idea or a concept of an entrepreneur or a group of entrepreneurs. It is the need for this idea in the market place that creates a space or need for the product or service. There have been many products and services that were never been in the market, but conceived and implemented. For instance Americans battle with obesity and unhealthy eating habits on a daily basis. This is a serious concern for them all the while. It was this space that Subway tried to hit hard at and came up with low calories food and snacks. This was a brilliant concept even in hindsight. However the origin of Subway were to be inspected the owner put in all his savings to start the very first store and it hardly did any business in the first year of operations. Typical entrepreneurial response to such a situation would be to shut shop and carry on. However they chose to adopt a radically different strategy and they expanded! They borrowed money and expanded and added a couple of more stores – the human mentality that if a business is expanding – it must be doing good and their product must be good were the typical responses at the market and they never looked back after. Subway, as an organization always chose to do things dramatically different and has pulled off every risk they have indulged in. Similarly, at this juncture where Subway is flourishing and has become an international standard for healthy eating, especially when fast foods are a fashion statement, being able to withstand these market pressures and establish a healthy identity is a remarkable job that Subway, as an organization is doing.
4. For the corporation that does not operate internationally
Southwest Airlines is one among the many famous American Airlines’ which offers short-haul, high-frequency, low-cost, point-to-point air carrier service. Southwest operates approximately 400 plus Boeing 737 airplanes to roughly 60 different domestic destinations. Southwest is highly famous for its lowest operating cost structure in the domestic airline industry and is also known to constantly offer the maximum lowest fares. The standard description of Southwest Airline’s greatness has been its development and unending expertise of what has become popular as low-cost carrier model (LLC model). Low cost airlines have created a revolution in the way people travel. It has actually stimulated people to travel in a way. By bringing in low cost flying many people who could not afford to fly earlier also have experienced the joy of flying.
Southwest Airlines went through numerous ups and downs for almost two decades. Revenue grew considerably at a slower pace in the year 1991, since its inception, when suddenly a miraculous fifteen-year run of strong revenue started for the company. Even the airline’s stock price which displayed only modest appreciation till the late 1990s started delivering the best return on investment in the history of United States. This continued for a decade.
Despite all these numerous ups and downs in terms of its financial performance, the LLC model of the airline remained unaffected. It is possible that the company improved its service quality than earlier as time passed, however, incremental perfections with a time-honoured strategy fail to clearly explain the vivid and unforeseen setbacks in the company’s financial performance. To be precise, every single attribute of the LLC model that was adopted by Southwest Airlines remained unchanged since its inception, and surely experienced no pertinent modification between the period 1990 and 1993, a time when the stock prices of the company increased by about six folds. The reasons behind this are nothing but disruptive innovation.
Precisely stating, Southwest Airlines simply disrupted the incumbent airlines. Disruptive Innovation basically consists of two principal components:
- “A unique business model that appeal to the needs of segments of customers on which dominant incumbents place relatively little value.
- An enabling technology that eventually allows this business model to appeal to valuable mainstream segments.”
In brief, disruptive innovation theory elucidates how large, successful incumbent organizations in all industry verticals are knocked down by much smaller start-ups. New entrants essentially succeed by first evolving resolutions for moderately small and unattractive markets in which successful incumbents have no interests at all. This market segment constitutes the “foothold” market segment of the new entrants. Occasionally, customers in these so called foothold markets are quite comfortable and get satisfied with services that are although inferior yet inexpensive in nature. In addition, these customers sometimes require solutions with a massively diverse performance profile. Consequently, the new entrants improve their initial offerings in ways that permit them to compete efficiently for the larger, more profitable conventional market segments. These upfront new entrants are essentially driven by the above explained desire to grow. In the case of the LLC model adopted by Southwest Airlines, the company had numerous defining elements which permitted it to be profitable at prices unmatchable by incumbent competitors in the industry. A crucial ingredient of Southwest Airline’s was its fleet of aircrafts, which comprised of exclusively Boeing 737s. This crucial ingredient had numerous advantages in terms of cost as discussed above which eventually contributed to the profitability of Southwest Airlines. Southwest Airlines as an organization is unique and has been extremely successful over the years in a highly competitive market.
Southwest Airlines quickly incorporated the new Boeing 737-500 into its fleet of aircrafts and exploited all its lower costs to start adding increased routes of higher average length. Moreover, instead of just serving increased number of cities, the airlines also extended its route system enabling many more business travellers to fly this carrier and eventually build their frequent flyer account with the airline. Alternatively stated, a more extensive structure of routes might have had a second-order effect on revenue growth. Even marginal increases have a strong impact on the overall profitability of airlines, given the industry’s sensitivity towards load factor economics.
The numerous unique facets of the business model of Southwest Airlines are unquestionably the crucial elements of the company’s unprecedented success. Between the years 1971 and 1991, a two decade period, the company successfully carved a niche for itself in the industry and was also able to create a reasonably successful business enterprise. However, even though it might cost a little too much for Southwest Airlines to expand globally, it would give them an opportunity to compete with international players in the global market and vie for a pie of the market share. For doing so, the current strategy of the company would not work and there needs to be a different strategy designed and implemented at an international level. Price differentiation is one such strategy which the company might think of adopting, which if done would help the company attract more number of customers. The company could probably think of offering a few services for which the competitors charge for free. This might make the customers happy and eventually repeat customers would increase.
One of the predominant motives that drive the mergers and acquisitions is the organization’s desire to grow. Organization’s that wish to expand have to make their minds between two generic growth strategies, one being organic growth while the other is the growth driver by acquisition. While the first option is rather a process that is slow and steady in nature and also a function of time factor, the second option is rather aggressive and is relatively risky in nature.
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