 The importance of mergers and acquisitions in the telecom sector is well known Particularly in future packet networks. It gets very important to understand it in full So in this module, we'll understand the need the key factors the forces which determine such merger and acquisition to realize Consequent concerns and then we'd also look at some key terms which are important to be understood Mergers and acquisitions are essential in telecom sector Because the telecom market is very difficult to realize. It has high fixed costs Later, it has low marginal costs, but the initial deployment or the CAPEX requirements are very high This encourages the corporates to do consolidation Consolidation as we shall see is a type of a merger or acquisition in which the two parties come in a certain contractual obligation In 1990s, the US and Europe started interacting and reaching out to each other and This saw an immense wave of mergers and acquisitions Consequent to the mergers and acquisitions There's a reconfiguration of the entire market structure world over What happens is with mergers There is a limited pool of service providers which remains out there This results in kind of monopolization or we say oligopolizing of the telecom industry The obvious reason for merging is a business concern that is profitability So we say that telecom giants merge or acquire each other either for efficiency or for product or market diversity Their mergers could vary in terms of the speed which takes place in merging the two giants or The size of the merger depends on the size of the two stakeholders There are certain side issues and Factors which equally determine the motivation for merging. That is there are some overambitious Individual proprietors Which have very high ambitions Similarly at times its requirement Particularly for companies which are listed in the stock exchange to avoid the risk of bankruptcy then the timing of buying out a company or Merging into a company is very important with regards to the high and low of the recession and the vibrant market environment For instance, when there's a when there's a golden opportunity for the first entrant He or that particular Proprietor is expecting the largest profit out of selling itself off or buying another sister concern The factors are many But we are going to touch upon the essential ones which in turn create other sub factors The first and obvious one is globalization When we say globalization it means Transcontinental and transnational activity, which is business deals. This results into a lot of Business requirements which allows the companies from different countries to synergize and to have a symbiotic relationship with each other add to this the Liberal or the neoliberal requirement of the foreign companies to invest in Telecom sector to have value addition not only in their own country, but across the globe then the next factor which has a very important role is the deregulation environment the regulatory landscape in 1996 was the turning point or the watershed moment and that dictated the post monopolistic environment before that Companies such as 80 NT were enjoying the regulatory Leverages which were given by the US government But as per 1996 telecom act the deregulation took place and the companies were allowed to compete in the open market Of course this result in a resulted into antitrust and the consumer protection related issues and consequently the consumer protection laws and Antitrust laws were also Incorporated in due course of time and then there are some technological advancements which Actually dictate a certain merger or an acquisition to take place for instance as we know in NGN we talk about Network convergence service convergence operator convergence in all we can call it digital convergence So sometimes the conglomerates have to provide more than one service If they really want to survive and stay in the market This comes at the cost of increasing the features in Their hardware and software for that they need to join hands with their perhaps rivals as well Then the next factor is the economies of scale The economies of scale actually means that the industry goes through certain vulnerable periods because of the global or international socio-political and economic conditions so this allows the companies to reach out to other companies to expand Their marketplace and reduce the risks by joining hands with their own competitors This helps them to survive the worst period of recession and slow growth and And to their advantage now they have a new market and new customer base that they can access Just by virtue of having economies of scale by joining hands with their competitors Then we have the economies of scope that means sometimes having a certain media type and Marketing it and selling it and thriving on that is not sufficient So at times there's a requirement to reduce the dependence on certain media type and extend the product line This helps the organizations to survive By reaching to other organizations for an outward growth For not only the current market, but also a new market where their products their fresh line of products could be potentially sold last but not the least America being one of the pioneering countries in in the telecommunication sector has devised a very interesting tax environment that encourages Giants and Bahamut Bahamut if you may They allow the large sized companies By incentivizing them to expand So it means a giant could turn into a mammoth or a behemoth if you may and They do it in such a smart way because they have ways to manipulate tax by asking their tax consultancy firms To include the price of the media company that they acquire To show it as a tax liability This is encouraging for the large-scale companies, but this discourages the startups and Smart modern small-scale on enterprises to to compete with these giants Because the effective Purchase price for these Giants during the merging and acquisition process is shown to be relatively Heavy and burdensome so American tax environment knows that they have a customer base and The US government wouldn't like their business processes to stall. That is why they give special favor to these Giants This results into a new Market place where certain dynamics come into play for instance on the positive side a diverse range of telecom services could now be offered and Large swaths of earth would now be provisioned with such services So it means the diversity and coverage have both increased This however is coming at the preferential Treatment of profitability for these organizations Which actually Mars or weakens the state-mandated concerns So it means for a nation-state like Pakistan India Australia or anywhere else in the world Giants coming from United States are going to have Impact which our governments would not be able to sustain in addition the Provisionism desire that is everyone has to have access to the to the digital services is compromised because the merger activity Identifies or accentuates the inequality in the telecom sector. It means somebody who is The primary customer of these Giants as a consequence to mergers and acquisitions is Going to benefit more in terms of better quality as compared to developing nations like Pakistan or Bangladesh and the like Now let's look at certain key terminologies. These are mere definitions, but with regards to the overall concept of how the networks have Evolved merged been acquired over time some formal understanding Is necessary so we'll start off with the very definition of merger as such What's merger? Merger is basically an agreement between two companies to consolidate their functions as well as assets So these two companies decide to work as one United Company This is straightforward merger, which is based on parity Acquisition is when a large fish Swallows a small fish one company purchases other company and its assets Then the concept of acquired company is it's the target company, which is purchased by another buyer company Which is the acquiring company Then we have different kinds of acquisitions per force acquisition, which is hostile acquisition and friendly acquisition friendly acquisition is when a target company and Its board of directors and shareholders will fully allow Their company to be a target company and be sold to an acquiring company The hostile acquisition is where The acquiring company makes direct offer to the shareholders without Deference and consultation with the board of directors. It's also known as the tender offer Then there is a very interesting concept conglomerate This is a profound phenomenon in in Europe in Japan and in South Korea In South Korea it is known as cable That is a giant so conglomeration is basically a merger between medium-sized to small-sized companies Which are completely unrelated in their Marketplace Whether it's their products or their services So a conglomerate is a very large company that comes into existence when small group of companies come together Then we have the leveraged buyout leveraged buyout is basically a Luxury or a leverage to an acquiring company that somehow manages To get a lot of loan from somewhere gets enough X checker to buy the target company Then we have Statuary murder a merger versus statuary consolidation a Statuary merger is when one of the merging companies Decides to remain as an individual legal entity although It's been merged into the acquiring company, but still its identity is somehow preserved Consolidation is when both merging companies stop existing with their previous names and Start off with as a new combined entity under a new brand Then we have the Forward merger and triangular merger Forward merger is basically a straightforward merger in which the target company becomes part of the Acquiring company and it ceases to exist as an independent entity Triangular merger is when there's a third party known as the subsidiary of the buyer The target company becomes part of the subsidiary company Then we also have the reverse triangular merger in which the subsidiary Company becomes part of the target company. So it means the target company is large enough to acquire the subsidiary Now this new entity continues as new subsidiary under the parent buyer So the acquirer is the one at the top followed by the the target company Which is which has subsumed the subsidiary of the original acquiring company then we have the Market versus product extension merger if the emphasis is on expanding the marketplace This is actually going to happen between companies which have Similar products, but they've got different markets So they want to engage With each other to reach out to eat others markets for instance across different countries or different regions then companies Also sometimes come together Once they have similar products and similar markets So it means now this is basically a product extension merger where the product portfolio or product diversification is something that these two companies which are merging or being acquired or acquiring are going to agree upon Then we have the concept of joint venture or a JV Joint venture is basically a partnership Which is temporal Based upon some project. So it means these two companies are going to come together Formerly or informally For a certain project execution time The formal joint venture is actually once the entities Agree to have another name during the project execution For joint venture in which both of these are going to contribute their assets and share the equity Then we have the Deals that is asset deal or stock deal As a deal is when the acquiring company Purchases the assets of the target company. This could include knowledge the list of customers inventory Resources equipment paraphernalia, etc The target company however remains the legal owner. So it means this is the asset deal, but the stock deal is once the Acquiring company or the buyer purchases the target's company stocks and assumes the ownership Including both the assets as well as the liabilities. So it means asset deal is just the Acquisition of the resources Temporarily Kind of lease but in stock deal. It is the permanent transfer and Giving up of the right Then the two companies could or more than two companies could come together for Exchanging their shares. It's known as Stock swap the target company's shares are exchanged for some of the buyers shares in a merger or acquisition now this has to be quid pro quo or tit for tat it means some Agreeable ratio Known as swap ratio has to be maintained Then we have the discounted cash flow in which the acquiring company Estimates the potential that the Target company has to offer through discounted rate This allows the buyer company to make an intelligent projection about the growth or the Monetary worth of the target Now the references which I have consulted from are from the smart sheet and Very beautiful paper that has garnered very good citations by Barney Wauff Merges acquisitions in the telecom industry dating back to 2003