France Telecom intends to merge Orange into its own cellular business, which includes market leader Itineris (which is head-to-head with Vodafone’s chums at SFR-Vivendi), and then to list the new company in Paris, London and the US. Despite the money, France Telecom waved out of the UK 3G license auction, but by listing the merged cellular company it’ll be in a better position to bounce back in the French license round, and elsewhere in Europe. 1 A post merger analysis with respect to strategy reveals that, tactically and in relation to development, growth and profit, Orange and France Telecom were almost identical.
While both companies were European, they each had global aspirations (with France Telecom acquiring Equant and Wanadoo earlier in the years). This shows that while lagging behind US firms in the fixed-communications industry, European companies are at the cutting edge of the mobile sector. In most post analytical circles, the Orange and FT (France Telecom) merger is described as a partially successful horizontal merger. 2 (See Figure 1) This is due to the nature of the merger and the difference in corporate cultures.
The corporate culture in France has long been characterized rigidly as hierarchical and lacking a solid communicative foundation, resulting in a certain lack of flexibility in planning. 3 Whereas Orange had over the years adopted a free-lifestyle sort of corporate structure allowing their values for their products guide how they work, in a straightforward, honest, friendly, dynamic, and refreshing way. 4 Both companies had a similar taste in corporate mission, strategy and goals. The effect is best analyzed on benchmark basis.
The effects in the FT/Orange merger could best be qualified on the basis of the benefits received when using a continental partner in the sectors of marketing, logistics, brand image, brand awareness, product development and technology innovation. The merger allowed France Telecom to gain access to ‘the continent’. FT Sufficiently broadening its customer base as at December 31, 2003, to approximately 117. 1 million customers. 5 Orange, before the merger, was and always been geared towards a one-market policy: That of the mobile sector using GSM technology; Where FT was a multinational with ambitions of diversification.
The merger drastically enhanced the logistics, marketing strategy, brand awareness and technological capacity and capabilities of the company. The new joint company FT and Orange creates the second largest European wire-free operator, with a substantial presence in each of the four largest European markets and a broad footprint across 16 countries. There are number of economic reasons behind the merger between Orange and France telecom. Firstly, is the possible benefit of economies of scale. This occurs when an increase in the size of the firm leads to fall in average cost.
According the theory of economies of scale, the firm will get better rate of interest on a loan and will have stronger financial position in order to able to pay the interest on debt, as the size of it increases and this known as financial economies of scale. Secondly, France telecom and orange are looking to be more competitive with the main rival. This is because Vodafone had merged with Germany’s Mannesmann AG. This had increased its financial position and market share within telecom in industry within the UK.
So that by merging with France telecom it would enables Orange to compete with Vodafone in term market share and advertising Campaign. Thirdly, by merger both companies will be able to combine complementary resources. E. g. as France telecom is also operating in the fixed line telephone industry, it will enable Orange to use any resources that relates to fixed line telephone, Infrastructure and the expertise which is required to operate within this industry. Therefore this would allow this company to expand to fixed line telephone industry. (Ft. com: 2003).
Fourthly, is to eliminate the inefficiencies in between the two firms. Poor management can become a severe problem to a firm, and if it is acquired by another company that have much more efficient management, then the overall company value would increase after the merger. As an example,” France telecom Net debt totaled 49. 3 billion euros at the end of June, down 18. 7 billion since December 31, 2002″. (Ft. com: 2003). This shows that after the merger the combined companies became more efficient in managing its finance. This occurred because of the implementation of Orange financial policy after the merger.