Mergers and acquisitions Three and O2 to be owned by the same company

Mergers and acquisitions Three and O2 to be owned by the same company

O2 is one of the UK’s powerhouses in terms of the mobile industry. With already relatively few players competing in this market, what is going to happen to the UK mobile providing services and will this acquisition end up costing the UK public?

The parent company of Three is the Hong Kong based conglomerate Hutchinson Whampoa and is owned by the richest man in Asia worth a very impressive £25.5 billion. The deal to take over O2 in the UK will cost the company £10.2 billion and it is reported that this is to be predominantly paid for in cash. (Rankin, 2015). The use of cash in the takeover provides Hutchinson Whampoa with a number of advantages. Firstly it makes the proposition more attractive to Telefonica (O2’s parent company) as the compensation is more certain compared to a shre for share transaction (Arnold, 2013). Furthermore using cash doesn’t dilute the company’s own shares and therefore it retains more control of its business.

This takeover will provide the conglomerate with many advantages associated with horizontal takeovers. Operational synergies will be easily achievable as together the brands have over 30 million customers and about 41% of the wireless market (Thomas, 2015). Alongside this the takeover will allow for greater economies of scale with purchases of supplies such as mobile phones being able to be bought at a significantly larger scale, allowing for bulk buying reductions to come into effect.

The most prominent advantage the company is likely to achieve as a result of this takeover is the power and market share it will obtain within the telecoms industry. This merger will result in the number of major competitors falling from 4 to 3. What this means is the company will be able to achieve monopoly profits (Arnold, 2013) as the lack of competition will allow the remaining competitors to increase prices without any consequence or loss of demand.

This lack of competition is concerning for the UK public as it is almost certainly going to negatively affect them. In addition it is unlikely the deal will be stopped by competition regulation as the EU has already allowed similar takeovers with similar consequences to occur elsewhere in Europe (Thomas, 2015). However it is not all bad news for the general public, the merger of BT and EE, Vodafone pushing into the broadband market and Sky planning on entering this industry, all will be offering bundle deals. This may result in sufficient healthy competition to force the main players that cannot offer bundle’s to keep their prices down in order to attract custom.

References

Arnold, G. (2013). Corporate Financial Management. Harlow: Pearson .

Rankin, J. (2015, January 23). Mobile network Three to buy O2 in £10bn Deal . Retrieved March 31, 2015, from The Guardian : http://www.theguardian.com/business/2015/jan/23/mobile-network-three-to-buy-o2

Thomas, D. (2015, March 24). Hutchison Whampoa agrees to buy O2 for £10.3bn from Telefónica. Retrieved March 31, 2015, from Financial Times : http://www.ft.com/cms/s/0/9d43d52c-d250-11e4-9c25-00144feab7de.html#axzz3aP02brml