CURRENT ISSUES IN BUSINESS

Sector:Acquisition in Telecommunication Sector- Bharti Airtel acquired Zain Africa.

Submitted to: Mr. Ashish Shukla

Submitted by: Choki Wangmo K

Reg No: 11013118 Jasmandeep Kaur Reg No:11003424

Introduction: Mergers and acquisitions: M&A refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or new location, without creating a subsidiary using a joint venture. The distinction between a "merger" and an "acquisition" is that, an acquisition is the purchase of one business or company by another company or other business entity."Acquisition" usually refers to a purchase of a smaller firm by a larger one. Mergers occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. EXAMPLE OF MERGER AND ACQUISITION:

India's Bharti Airtels Acquisition of Zain Africa:

Bharti Airtel limited is a leading global telecommunications company with operations in 19 countries across Asia and Africa. The company offers mobile voice & data services, fixed line, high speed broadband, IPTV, DTH, turnkey telecom solutions for enterprises and national & international long distance services to carriers. Bharti Airtel has been ranked among the six best performing technology companies in the world by business week. Zain Group is a mobile telecommunications company founded in 1983 in Kuwait as Mobile Telecommunications Company, and was later rebranded to Zain in 2007. Zain has commercial presence in countries across Africa and the Middle East with about 37.6 million customers. Zain entered Africa in May 2005 through the $3.4 billion purchase of Celtel International . Zain invested heavily across the continent through network upgrades and acquiring two more country licences. Zain's One Network is the worlds first, borderless mobile service offering over 64 million Zain customers in 21 countries favorable rates, free of high roaming charges for crossborder communications.

Type of M&A A horizontal acquistion: It is usually between two companies in the same business sector. The synergy is obtained through many forms including such as; increased market share, cost savings and exploring new market opportunities like in case of Bharti Airtel and Zain Africa. NEED FOR ACQUISITION:

Economy of scale: This refers to the fact that the company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.

Economy of scope: This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products suitable for the African markets.

Increased revenue or market share: This makes Airtel will be absorbing a major competitor and thus increase its market power by capturing increased market share to set prices and this deal captures 15 countries at one go.

Taxation: company can use this acquisition for their advantage by reducing their tax liability. Resource transfer: resources are unevenly distributed across firms and the interaction of target and acquiring firm resources can create value through either overcoming. Widespread Presence: this will make Airtel a global player internationally well-known.

POST ACQUISTION EFFECTS Indian operator Bharti, closed its financing for the deal to the tune of $8.3bn, which is transformed into a major global operating group becoming the worlds fifth largest operator by customer footprint. Africa provides tremendous growth opportunity, entering 13 countries with very different market dynamics in one go will creating a number of challenges on the same time. Airtel is confidently controlling its costs; aiming to build up its brand equity characterized by reliability and innovation. In an already competitive marketplace, Bharti is not just competing with other mobile operators for a share of wallet but with other brands in adjacent consumer goods

sectors. This means that Bharti Airtel is under pressure to offer services that are directly relevant to end-users and this differs from market to market. For Zain, the deal represents a retrenchment of the companys strategy as well as good value. The company succeeded in transforming its brand and building up an impressive customer base across sub-Saharan Africa, but it has struggled to operate profitability. The move also has repercussions for the African region, with the likes of MTN, Orange, Vodafone and Millicom joined by a new and rather different pan-regional operator. Bharti has a heritage in making network sharing and outsourcing deals work and will not be afraid of being aggressive on per minute pricing. The company is also well versed in addressing the difficulties of serving a largely rural, high-churn, low-revenue market. Bharti is taking advantage of market consolidation by divesting some of its legacy assets and potentially looking to add new markets to its African portfolio. Thus transforming in Africas competitive and operational landscape as a result of this deal covering 15 countries in Africa. By this expanding of its business outside the country, Bharti Airtel is benefitting from economies of scale, including getting better deals from suppliers. Bharti Airtel is boosting its margins outside India after the Indian market has become very competitive, with voice call rates sometimes as low as 0.01 rupees per second. Bharti Airtel has adopted a matchbox distribution strategy for Africa which means that every shop selling matchboxes also sells sim cards and top up vouchers building a huge dealer network. Huge investment in infrastructure has been made so as to develop its coverage and capacity and is capturing the customer base because of the strong potential in the African markets. Bharti Airtel has reported 51 per cent rise in total revenues but a 31-percent dive in quarterly net profit. Bharti's interest costs have soared due to the purchase of Zain operations in African countries.