Introduction 1500 1.1 Rationale This study focuses on investigating into how effectively the telecommunication organizations based in Thailand develop merger and acquisition (M&A) because nowadays telecommunication plays a significant role in driving development of businesses, economics, and countries. In the current globalization age, a large number of people around the world are able to communicate with each other from far distance more easily and instantly through advanced telecommunication technologies i.e. mobile phones, social network applications and the Internet. In other words, the telecommunication technology makes the world become smaller. With the nature of the rapidly changing communication technology, the market in the telecommunication industry has become very competitive in satisfying customers needs in order to gain the market share. Significantly, this has a huge impact on the telecommunication business providers in the industry in Thailand to expedite their competitive quality and improvement of network coverage not only for the domestic but also the international communication in order to gain the market shares and stay competitive in the market. The agreement with the World Trade Organisation (WTO) and the amendment of telecommunication act in 2006 accordingly facilitated the liberalization of the telecommunication industry by allowing two government enterprises to corporatize, opening the competition, and increasing in foreign share ownership from no more than 25% to 49%. Thus, there has been a considerable flow of investment from foreign investors in telecommunication sector in Thailand for example purchasing share, merger and acquisition, joint venture, diversification. This intensifies the competition in the telecom market In telecommunication sector, there has been the merger and acquisition and buying shares in Thailand from foreign investors for several years, especially since the liberalization of the telecommunication in xxxx. The telecom includes mobile phone services, satellite, Internet, and television, etc. This plays the important role to social and economic development of the country as the transfer of the new and advanced technologies and knowledge to Thailand. Domestic companies can benefit from these in increasing competency and expanding network coverage and there would be more cooperation between Thai companies and foreign companies, which they will gain a higher profit. As a developing country in Asia, telecommunication companies in Thailand, needs to adopt hi-technologies from advanced countries to increase competitiveness to be able to compete with domestic and international rivals in the region. As a result, seeking collaborations for development with domestic or multinational firms such as diversification, joint venture, and merger and acquisition would be good alternatives for operating firms. Why M&A? (Roberts et al, 2003) Merger and acquisition are ?. The advantages of M&A are synergies, reducing costs, gaining market power and market share, and economies of scale, etc. Due to the establishment of the AEC (abbreviated from ASEAN Economic Community) in 2015, it is believed that the trends of M&A will be multiplied not only among Thai companies but also foreign companies that desire to make an investment in Thailand. In telecommunication industry, the competition is intensified to gain customer base and market share that will benefit users for getting better quality and lower price. Those business sectors which are likely to be M&A include the growing businesses for example banks, food and drink industries, hospital, retail department stores and convenient stores. According to the 2015 world investment report by UNTAD, despite the fact that the foreign direct investment worldwide had a downward movement with changing in some areas. In contrast to the developed and transition economies with a significant decline, FDI inflows to developing nations driven by Asia continued at the same high level as in the past. The figure was estimated slightly over a half of the total in the world, whereas countries in Latin America saw a declined inflow and African countries had a low figure. In advanced economies, the FDI currents reduced by 28 per cent to approximately 500 billion US dollars. The US figure dropped to 92 billion US dollars, which accounted for 40 per cent of 2013. In European nations, the inflows of FDI had a decrease by 11 per cent to about 290 billion US dollars with increased inflows in United Kingdom, Switzerland, and Finland, and decrease inflows in France, Belgium, and Spain. In Asia, the foreign direct investment had a 9 per cent increase to 465 billion US dollars in the year of 2014. For the West Asian countries, the FDI had still remained the declined movement in 2014 for six years, which it reduced by 4 per cent to around 40 billion US dollars due to the issue of security. On the other hand, there was an increased inflow in South-east Asia, East Asia, and South Asia. China saw a rise in FDI by 4 per cent from 2013 to about 130 billion US dollars, mostly from the services business. The figure for India significantly grew by 22 per cent to 34 billion US dollars. Regarding the entry modes of FDI, there was an increase by 34 per cent in 2014 in the total value of cross-border merger and acquisition deals estimated for 900 billion US dollars, which was more than the annual average of 775 billion US dollars between 2010 and 2014. The trend of acquisition covered the manufacturing and services, which rose 77 and 36 per cent in gross value of cross-border M&As, respectively. Interestingly, the telecommunication industry and the chemicals and pharmaceutical industries were found active as clearly seen in big agreements. In addition, the international divestment would imply the cross-border merger and acquisition rather than attempting to less expose to international business. According to the ratios in figure I.11, it illustrates that the divestment related to acquisition was equal to latest average regardless of the divestment of Vodafone in Verizon. The businesses related to financial and services sectors were prone to have the highest opportunities to invest further FDI in 2015, whereas the growth of developing FDI will be anticipated in the larger portion of corporations operating in the advanced telecommunications, pharmaceuticals and other manufacturing sectors during 2016-2017. According to UNCTADs regional investment trends, in 2014 Thailand was ranked in the top 5 host economies of FDI inflows in the East & South-east Asia. It was valued approximately $12.6 billion with -10.3% change. Looking closer to the South-East Asian countries, the recent data from the Indonesia Investment Coordinating reveled that the highest sectors for FDI significantly included food, transportation, mining, and telecommunications, metal, machinery and electronics, chemical and pharmaceutical. Furthermore, infrastructure has experienced a growth in the international investment. In the sector of advanced telecommunication, it is reported that subsidiaries operating inside and beyond the region significantly constituted for market share in the South-east Asia markets including Thailand and Indonesia. The big companies that have recently been recognized in the Asian industry are China Mobile and Singapore Telecommunications Ltd. However, although the M&As might result in reducing a number of existing firms and options available for consumers, there would probably be new opportunities and probabilities occurring from synergy any time in this age of globalization since developing M&As can be a success or a failure. Why telecommunication companies? (Tilleke & Gibbins, 2012) During 1997-2012, there was the flourishing evolution of the telecommunication sector in Thailand as it can be evidenced by the rising rates of fixed-line telephone penetration, and existence of advanced technologies. Earlier the operation of telecommunication services were exclusive for former state enterprises including the TOT Corporation PCL and the CAT Telecom PCL and the Post and Telegraph Department (PTD) under the Ministry of Transport and Communication. Prior to the 1990, the government provided concession for private companies to involve in telecommunications industry. The concessions which were Build-Transfer-Operate were allowed to the then Telephone Organization of Thailand (TOT), the Communications Authority of Thailand (CAT), and the PTD to some local companies to run their businesses with international firms such as joint venture mode. In the late 1990s, the Master Plan for the Telecommuncation development was launched by the government to be in line with the World Trade Organsiation (WTO). As a result, the two above state enterprises were privatized, leading to competition in the telecommunication industry, according to the method of liberalization, as well as the establishment of the independent National Telecommunications Commission as part of the WTO. Since then the domestic and foreign companies are able to provide telecommunication services though applying for licenses. However, the foreigner can conduct their business in the telecom industry by only developing joint venture and the ownership portion of shareholding was limited to no more than one-fourth, according to the telecommunication law. Later in 2006, the Telecommunication Business Act (2006) was amended to no more than 49% in order to encourage more investment from foreign shareholders. This liberalization scheme facilitated the transfer of the TOT Corporation Public Company Limited and CAT to operate as the private telecommunication companies. The TOT Public Company Limited and True Corporation currently are big players providing services of network in Bangkok and in other provincial areas, networks are provided by TOT Public Company Limited and TT&T Public Company Limited. The mobile phones have recently got increasing usage more than the fixed-line telephone. According to the statistics, it was reported to people used mobile phone five times more than the fixed-line telephone and more than a half of the total population in the country at that time possess mobile phone. In addition, the figures of the telephone numbers were outnumbered the Thai population. In mobile telecommunication industry, there are three key companies providing services, which are Advanced Info Service PCL (AIS), Thailands largest GSM mobile phone operator subscribed by roughly 28.8 millions, Total Access Communication PCL DTAC, with about 23 million subscribers) and True Move (operated by communications conglomerate True Corporation PCL). ?????????????????????????????????????????????????????????????????? ??????????????????????????????????????????????????????????? /// In Thailand, the telecommunication industry, which covers fixed-line and mobile phone services, broadband Internet service, sattellite service, and television, tends to experince a high growth with expansion role of ASEAN Economic Community (AEC) and ASEAN countries. As the telecommunication services are provided by a few major firms, which are AIS, DTAC, and True Move, the characteristic of the market is oligopoly (?????????????????????). Therefore, some barriers for new entrants to enter the market exist because of availability of a concession from the Thai government. Also, the natural monopoly from high fixed costs in structuring network and the limited natural resource of frequency of waves. Thus, these caused a concentration of investment and certain firms has large market share. The big companies have a complication in terms of policy and marketing and also have several subsidiaries. In addition, Furthermore, the telecommnunication sector has played an important role to the development of other businesses and the country, especially Thailand as a developing economy in Asia and having high competition in investment. To develop the telecommunication system, it needs import of advanced technology from other countries. However, conducting telecommunication business is presently vulnerable due to the rapid changing of technology. /// Study: Market primed for 11.5% growth this year(Tortermvasana, 2016)According to the report made earlier this year by the National Science and Technology Development Agency (NSTDA), it revealed that the telecommunication sector in Thailand was expected to experience a growth of 11.5% or valued 597 billion Baht (about 169 million US dollars), which increased from 536 billion in 2015 or 7.3% rise from 2014. This was the result of the nationwide implementation of fourth-generation (4G) network and the growth of the digital economy as well as in 2014 Thailand suffered from economic slowdown (Tortermvasana, 2016). The telecom equipment market (including mobile handsets, networks, and fixed-line and wireless gear) is expected to reach 256 billion baht this year, accounting for 42.8% of the total telecom market of 597 billion baht. The market of telecommunication equipment, which is networks, handsets, and fixed-line and wireless gear, was likely to peak at 256 billion baht in 2016, which constituted approximately 40 % of the 597 billion baht total. Meanwhile, the service market of telecommunication has a tendency to expand by 13.9% to 247 billion baht in 2016. The broadband Internet service, data communication service, fixed-lines service, and international calling are valued 59.3, 15, 13 and 7.8 billion baht, respectively. In contrast the normal mobile voice service and fixed-line service will remain at low level owing to the fact that there are more consumers changed to use mobile data service. According to Asian Development Banking, 2015, the growth of the telecommunications has a significant role for expanding the advanced economy of the country due to several reasons. For example, it helps a quick flow of information in business and in general, it enables logistics and supply chain management to be conducted in real-time, it facilitates the regional and global transaction, and people can communicate the complicated data from distance. The effective and highly developed telecommunication infrastructure accelerates and encourages design and innovation in domestic and international businesses. Some Asian countries which grow rapidly and have high level of income endeavor to improve the augmented infrastructure for the telecommunication. In Thailand, there has been a considerable growth of the telecom industry since shortly before the year of 2000; however, some issues are needed to be executed. The people are disconnected, which is not in consistence with the economic level of the country. The usage of landline telephones is considerably low, estimated 8 lines per a hundred persons, which is exceeded by Malaysia and Indonesia, and roughly one-fourth rate for high income country Singapore. Meanwhile, the concentration of mobile phone users is considerably higher despite being less than the competitive nation within the regional area. For instance, the mobile phone subscriptions are estimated 144 per 100 people. The use of broadband internet and the number of safe servers in Thailand are considered lower than in Singapore, Malaysia, and the Republic of Korea. In 2014, there were over 80% of Korean households owning computers, while Thailand had 29% in comparison. Regarding computer possession, Korean households had over 80% in comparison with Thailand at 29%. The amount of internet access within houses was higher in the Republic of Korea with 98%, whereas Thailand had 23%. However, not only the ineffectiveness of law enforcement limited the competition in the industry, but it has also obstructed Thailand from improving the telecommunication sector. To provide a networked service, the principal of the relevant regulation is required to enable services providers to access to the infrastructure and for the subscrbers to gain access to the competitors network. Nevertheless, that principal has not been well supported, and new firms could not enter to the industry. In the middle of 1990s, Thailand just started to use Internet services, which there was a scheme implemented to support the expansion of 3G services later during the beginning of 2000s. Compared with less-developed neighboring countries like Lao Peoples Democratic Republic and Cambodia, these nations began the 3G services earlier than Thailand. Meanwhile, 3G services have been used in the developed economies i.e. Japan over ten years ago and they are developing 4G. The main issues restraining Thailands development are politics and laws, which determine the authorized agency to oversee a permission of 3G licenses. Until in 2012, the amended regulation related to telecommunication was implemented to facilitate the sale 3G licenses. Considering Thailands geography, it is located at the centre of Asean countries, so it can be the central point of telecommunication connecting to neighboring countries in the region. As being close to the sea, it is an advantage for connection and transportation in several ways. Especially in AEC, it is extremely vital for businesses to be prepared for connecting information precisely in real-time for business growth in the future. //// With the characteristic of a few large telecommunication firms in the market, it is challenging to study how they can use merger and acquisition to expand their businesses effectively in the market. //// Research objectives The main objectives of this study are as follows: To explore the impact of M&A on liduidity, activity, leverage, profitability, and market performance ratios of telecommunication companies, operating in Thailand considering the value creation theory To identify the potential impacts of M&A on the change in stock prices of the telecommunication companies in Thailand To investigate whether M&A can add a rich value to the shareholders wealth To explore whether the integration between the acquirer and targeted company can create significant value addition. Literature review 4000 Merger and acquisition are considered as the most crucial financial action through which an organization can sustain in the presently rising competitive and globalised business environment. In view of De Pamphilis (2011), the merger is principally an amalgamation of two business organizations under one universal entity. (Robert et al, 2003) A merger or an acquisition is defined as when more than a company decided to combine as new entity or corporation. Although merger and acquisition are interchangeably used in many contexts, the meanings of each term are different. A merger occurs when two firms agree through a process before they corporate together as one company. To provide an example, there are two firms, namely firm X and firm Y. They are running their financial businesses. The firm X is the high street bank that has a large share of customer base. The firm Y is an institute that gives a service about the property loan for local customers. They made a decision to do a merger because they could integrate between financial information and the local customers together. For instance, the firm Y could apply its expertise of home loan to provide a better service to current customers of the firm X. Both firms might negotiate about the merger, they can join as one larger companies provided an agreement meets them. An acquisition could be made without the negotiation process. For example, the firm X makes a purchase of the firm Y. As a result, the firm Y completely belongs to the firm X. The firm Y can be engaged and try to stay as an individual entity, or the firm X could keep the firm Y as before acquiring the firm. This limited absorption is done whether the firm X intends to trade the firm Y in the future. The company which acquires another company is called the acquirer and the company which is bought is called the acquired or the target company. In general, the acquisition can be done by purchasing shares, which can be all of the shares or the most shares. The law and regulation related to merger and acquisition are unique in each country. There are two types of acquisitions, either friendly or hostile. If the target company agrees to become one entity, it is a friendly acquisition. The acquired firm may gain some benefits from acquisition i.e. development and pooling resources with the acquiring firm. It is obvious in the small firms, which may have insufficient cost to grow their businesses. On the other hand, if the acquired company does not have a willingness to be acquired, it is hostile acquisition or takeover. A number of literature studies have been conducted to evaluate the significance of merger for organizations. The study conducted by Krus et al. (2003) signifies that the business merger deal between the companies created a significant long run impact on the operating performance of the manufacturing companies listed on the Tokyo security market. The financial performance of the merged firms was also assessed by a study conducted by Vanitha. S (2007). The study has shown that the announcement of the merger deal between the companies has increased the share value of the merged company significantly. A study conducted by Likewise, Rahman and Limmack, (2004) also reviewed the financial performance of ninety-four Malaysian organizations that were included in the merger deal occurred between 1988 and 1992. On the basis of the ratio of operating cash flow and operating assets of the organizations, the study showed that the financial performance along with the operational efficiency of the merged company had enhanced significantly after the merger as they can use the available resources more powerfully after the merger. Different theories have evolved to investigate the divergent reason for merger and acquisition for different companies. Two major theories are value creation theories and redistribution theories (Berkovitch and Narayanan 1993, and Vijgen 2007). In view of Stahl & Voigt, (2008, p: 164) value creation in M&A is defined as ?a long-term process that requires the realization of operational synergies. The value obtained through merger and acquisition can further be explained with the help of Agency theory, Hubris theory and the theory of free cash flow. Hubris theory states that merger can significantly increase the wealth of the shareholders but with a high cost that occurs due to overestimated self-worth of the managers Frensch, (2007, p: 30). Agency theory discusses about the divergences in the interest of shareholders and managers on account of merger between two companies Mueller (1989). In these cases merger cannot be beneficial for the shareholders. Theory of free cash flow also can increase a conflict in the interest between managers and shareholders Frensch, (2007, p: 30). Managers often willing to control the free cash flow generated from the merger instead of distributing it to the shareholders. This theory further enhances the need to develop financial position during merger and acquisition. On the contrary, some of the literature studies had shown that business merger deal had negatively affected the financial and operational performance of the companies. The study of Akben-Selcuk & Altiok-Yilmaz (2011) was conducted to investigate the impact of M&A deals on the performance of bidding Turkish organizations. The study outcome during the period between 2003 and 2007 for 63 companies reveals that merger had led to negative profit along with severe crunch in the liquidity position on the acquirer companies. Similarly the study of Sharma, D. and Ho, 2002, also revealed that merger and acquisition fail to form synergies on the operational performance of the Australian companies. This results in the insignificant financial performance of the bidding companies in the post-merger period. The similar findings are also obtained by Pazarskiset al, (2006) who investigated the post-merger financial performance of the Greek companies. The study of Marimuthu, M., (2008) investigated the impact of the merger during the period of 1997 financial crisis for the Malaysian organizations. The study found that merger cannot create any significant impact on the operational and financial performance of the companies during the financial crisis period. In spite of the availability of a number of research studies, perhaps, the telecommunication companies of Thailand remains as entirely an unexplored segment to examine the association between merger and acquisition and financial performance of the companies. Therefore, the present study tries to fill the gap in the literature and evaluate value formulation abilities of the telecommunication firms of Thailand. (-) http://web.international.ucla.edu/institute/article/38141 Accessed on 3 July 2016 According to the UCLA International Institute (2006), Kasikorn Research Centre disclosed that the acquisition of the telecommunication businesses by foreigners could make small to medium size business unable to compete in the market, while the large firms can become monopoly. At the same time, it could negatively affect customers despite receiving advantage of high technologies and content such as high quality access to the Internet. It said that multinational companies around the world were doing takeover then. Companies having sufficient technologies and contents can remain in the market. The acquisitions were the result of market openness, competition, and the saturation of telecommunication industry. However, new entrants could be impeded from entering the Thai market because the telecommunication law says that they must be granted the license to operate business from the National Telecommunications Commission.
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