Friday 3 February 2012

Shareholder wealth maximization: Hutchison to buy Orange Austria

HONG KONG, Feb 3 (Reuters, 2012a) - Hutchison 3G has agreed to buy Orange Austria from France Telecom and Mid Europa Partners, the private equity group in a deal valued at 3 billion euros ($1.7 billion), adding to more than $31 billion of investments in overseas mobile-phone operations.

HUTCHISON WHAMPOA LIMITED
The acquisition is believed to maximize shareholders' value. Hutchison shares rose to the highest level in five months in Hong Kong trading on optimism the purchase may improve its ability to compete against market leaders Telekom Austria and Deutsche Telekom AG’s T-Mobile Austria (Bloomberg, 2012). Hutchison shares rose as much as 3.8 percent to HK$76.20 on the news, bucking a flat overall market (Reuter, 2012b)."In the telecom business there is a real co-relation between market share and profitability," Bertrand Bidaud of Gartner told the BBC. Hutch said the deal would make it Austria's third-biggest mobile phone operator, with 2.8 million customers and a 22 percent market share, and the two units had combined revenues of more than 700 million Euros in 2011.

I think Hutchison's buying decision is a right decision at the right time. In the high competition in Austrian market, the best way to gain market share is fight against or consolidate competition, said Bertrand Bidaud (BBC News, 2012) . Hutchison used acquisition to increase its share. "It is definitely a positive for the future development as the acquisition cost can be lower in the current economic climate," said Conita Hung, head of equity research at Delta Asia Financial Group. "It is a good opportunity for those financially strong companies to buy assets in Europe, especially if they believe in the strong growth prospect," she said.

However, I wonder that is it really creates opportunity when Hutchison buy Orange Austrian in European debt crisis circumstance. European debt crisis affects the economic and demand of Austrian. The company could make profitability as its expected? Generally, the deal is believed to be a long-term profitability. "Overall, we do think the deal offers one of the few relatively visible paths to long-term sustained profitability for 3 Austria," Bank of America/Merrill Lynch said.

Not only shareholders but also customers, stakeholders, benefit from acquisition agreement. Orange Austria’s customers will benefit from 3 Austria’s superior high speed data network coverage and quality, while all of 3 Austria’s customers going forward will benefit from superior coverage, quality, innovation and service through the improved spectrum position, retail footprint and efficiencies that the combined businesses will generate (Hutchinson Press Releases, 2012). From my point of view, in this case it is not sure that Hutch corporate objective is stakeholders' capitalism, but absolutely shareholders wealth maximization.

FRANCE TELECOM
For France Telecom, the aim of sale is to exit low-growth mature markets and returning cash to shareholders (Reuters, 2012c). At the moment, the offer has negative effect on market share value of France telecom. Shareholder would suffer lower share value. However, it is not so bad. France Telecom decided to pay back cash to shareholders. Shareholders can determine continue invest in company or not. From my point of view, it would be long-term profitability. France telecom decided to close Austrian, lower growth market and concentrate on its core market or higher growth markets in Africa and the Middle East (Thomas & Jacob, 2012). It would improve the corporate value of organization. In future, it would benefit shareholder value. I conceive that France Telecom's decision is in order to maximize shareholders wealth.

REFERENCE
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