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Merger review - BT and Infonet

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Introduction

Introduction A merger refers to the absorption of one firm by another. The acquiring firm retains its name and its identity, and it acquires all of the assets and liabilities of the acquired firm. After a merger, the acquired firm ceases to exist as a separate business entity. In resent years, more and more merger and acquisition happened for those big companies as a result of intense competition in the business world. To maintain the competitive position in their respective areas, merger and acquisition become suitable strategic alternative, which would bring synergy to both companies. Revenue enhancement, cost reduction, lower taxes, and lower cost of capital can be the basic categories of possible sources of synergy. BT announced in 8 of November, it has signed a definitive agreement to acquired Infonet with $965 million in cash (�520 million). Infonet, a leading provider of global communications services, has a net cash balance of $390 million and that the aggregate worth of the deal was $575 million (�310million). The deal is subject to Infonet shareholder approval and regulatory clearances and is expected to complete in the first half of 2005. Therefore, Will this newly merged global communications company succeeds? Is there any maintain risk for this combination? ...read more.

Middle

and concerns with the debts BT own before, the shareholders of BT may worry about that, it will lead a reduction of return on cash to them. Indeed, they will lose confidences and ask for more dividends, which will make BT harder on the cash flow. Dollar against Pound Sterling Based on the current exchange rate, the dollar is at record lows against the pound sterling, which is comes out at $1.83. Therefore, it made American companies worth less with a declining dollar. From this point of view, BT took the advantage, and made the acquisition easier and cheaper for them. However, nobody knows whether this kindness will bring success to the combination. Financial Aspect Although, there are some uncertain aspects about this combination, but BT still got positive view with it. BT plans to have significant cost savings from combining the two businesses. The saving will come from the reduction in annual cash costs of the combined businesses, and have cash synergies by $150 million (�80 million) in the third year following the acquisition. Then annual cash costs can be the elimination of overlapping network leasing, operating and maintenance costs, the reduction of Infonet's in-country access costs through BT's scale and purchasing power, and the generation of efficiencies in sales costs, administrative functions and back-office operations. ...read more.

Conclusion

Our combination with BT will improve our ability to supply mission-critical services to our customers, by bringing a commitment to the long term development of IP-based services backed by financial strength and true global scale. While continuing to take full advantage of our existing services and delivery platform, our customers will also be able to access the whole breadth of BT's product and solutions capabilities."(2) Conclusion "Neither BT Global Services nor Infonet has adequate scale as a genuinely global networking player. Both organisations have been loss making, but together they should have sufficient scale to generate a profit when the synergies kick in. It seems that they both realized this point and doing the right thing according to the tending of the market. " (3) However, the right choice of the tending does not guarantee the success. To be successful, the combined company will have to effectively integrate and rationalize back-office systems and service portfolios, which also must be essentially transparent to customers. After the discussion above, the priced looked sensible, and those two companies can get great benefits from this move. References 1) Arnold, G., (2002) Corporate Financial Management, (2^nd Edition), FT Prentice Hall, London. 2) McLaney, E j., (2002) Business Finance - Theory and Practice, (4^th Edition), Pitman Publishing, London. Internet References 1) [1]http://www.computerworld.com.au/index.php/id;474865196;relcomp;1 2) [2]http://www.btplc.com/News/Articles/Showarticle.cfm?ArticleID=38f7c6 97-14f7-4d04-8f2e-802edd5ab774 3) [3]http://www.ovum. ...read more.

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