Mobile / Sprint Merger Within the More

¶ … Mobile / Sprint Merger

Within the more and more dynamic and challenging economic, social and technological context, the economic agents devise a wide array of coping mechanisms. One common means in which they strive to consolidate their competitive positions is through mergers and acquisitions. These imply the unification of two traditional competitors in a means in which mutual benefits are created, such as wider access to the market, know how, expertise, resources and so on.

Today, a piece of news which torments the American business community is related to the potential merger between mobile telephone monoliths T-Mobile and Sprint. It is the opinion of this study that the merger would be of a positive impact for the two firms. The following lines reveal the rationale for this conclusion.

The financial state of the companies

Data is not available for the entire 2010 fiscal year, but the information which is available indicates a difficult year, in which the profits of the two organizations registered negative increase rates. The main reason for this situation is generated by the internationalized economic crisis which has reduced the purchasing powers of consumers. The result is acceptable and explainable in a context in which the demand for mobile telephones and the adherent services is strictly pegged to the overall state of the economy and to the consumer spending capabilities.

At a more numeric level, the financial situations of the two organizations are revealed by the following:

T-Mobile registered a 0.5 per cent decrease in revenues at the end of the third quarter in 210 as opposed to the same period in 2009

T-Mobile registered a 0.10 billion decrease in the operating income adherent to the third quarter of 2010 comparative to the same period of 2009. The costs registered were also increased and the organizational emphasis is currently on revenue stabilization (T-Mobile Website, 2011).

Sprint's revenues increased from $32,260 million in 2009 to $32,563 million in 2010

Sprint's gross profits decreased from $15,825 million in 2009 to $15,071 million in 2010 (Bloomberg Businessweek, 2011).

3. The impact of a merger on the T-Mobile shareholders

The situation at T-Mobile is more complex than that at Sprint Nextel for the simple fact that T-Mobile United States is a subsidiary of a larger entity (Deutsche Telekom). This raises additional complexities at the level of the stakeholders in the sense of understanding the impacts on the stockowners in the U.S. And those outside the United States. The impact depends strictly on the company and the terms of the merger. For instance, in a context in which the merger implies the sell of the American subsidiary to the Sprint Nextel and the complete break from the German parent company, the international stockowners could benefit from increased dividends as a result of the sale of the subsidiary.

At the level of the American stockholders, the merger could imply either losses, either gains. For instance, the initial loss could be represented by the loss of centralized financials with the rest of the T-Mobile subsidiaries. The gains could however be derived from the registration of higher gains as a result of the merger. It is even possible for the investors -- the smaller ones that is -- to more profitably trade the stocks on the secondary market.

4. The impact of a merger on the Sprint shareholders

At the level of the Sprint Nextel stockowners, the impact depends on the nature of the merger. At an immediate state, it would be possible for the company shares to either suddenly fall or increase, creating as such turmoil, opportunities and threats within the stock market. Also, since the merger is expected to be complicated and expensive, it is possible for the newly formed company to withhold the distribution of dividends and to use the financial resources for the consolidation of the merger and the integration of the two organizations.

Within the long-term however, the merger is expected to create positive financial opportunities for the Sprint Nextel stockholders. In essence, the new corporation would be stronger, more competitive and more financially capable. This means that it would reveal increased abilities to reward its shareholders.

5. Potential profitability of the merger

The first and foremost important element which has to be noted at this stage is represented by the fact that the merger would enlarge the market shares of the newly formed entity. In this order of ideas, the new organization would possess a larger share of the market and would as such gain the adherent financial benefits.

Another plus of the merger would refer to the consolidation of the competitive position. In this order of ideas, prior to a merger, T-Mobile and Sprint remain cutthroat competitors which invest significant amounts of resources in the improvement of their own, individual competitive positions. The scope of such measures is that of ensuring wider market shares and improving the competitive position.

With the completion of the merger however, the competition posed by T-Mobile and Sprint for each other would be eliminated. At a financial level, this means that the two joining organizations would no longer use impressive financial resources to compete against each other. In such a context, they would come to possess more available financial resources to be used in various other projects.

With the savings registered as a result of decreased competitive strategies against each other, the two united firms could ensure increases in the financial results through a wide array of measures, some of them including the following:

Research and development to create new products. This step is in essence crucial given the modern day socio-economic environment, but also given the nature of the industry in which the firms operate. A specific application is represented by the 4G network, which would be supported and enhanced through a merger.

Strategies to penetrate more markets and gain increased access to more consumers outside the United States

Strategies to ensure a more in depth penetration of the markets in the United States

Strategies to create superior levels of customer value and as such higher levels of customer satisfaction, which would in turn increase the volumes of sales.

6. Potential pitfalls

It is not the scope of this analysis to consider the political and ethical implications of the merger as these would be addressed by the government. Like any other merger between multinational corporations, the United States government will have to decide whether the merger between T-Mobile and Sprint is legal and would not create monopoly within the communications industry.

Nevertheless, given a context in which the merger is in fact approved by the federal institution, an important risk is posed by the dissatisfaction of other players within the industry. These could accuse the company -- in spite of the federal approval -- and the accusations could materialize in trial suits. Eventually, these judiciary trials stand the risks of financial damage due to: