Case Study Short Essay Examination Questions
CenturyTel Buys Qwest Communications to Cut Costs and Buy Time as the Landline Market Shrinks
Key Points:
• Market segmentation can be used to identify "underserved" segments which may sustain firms whose competitive position in larger markets is weak.
• A firm's competitive relative is best viewed in comparison to those firms competing in its served market rather than with industry leading firms.
____________________________________________________________________________________________
In what could best be described as a defensive acquisition, CenturyTel, the fifth largest local phone company in the United States, acquired Qwest Communications, the country's third largest, in mid-2010 in a stock swap valued at $10.6 billion. While both firms are dwarfed in size by AT&T and Verizon, these second-tier telecommunications firms will control a larger share of the shrinking landline market.
The combined firms will have about 17 million phone lines serving customers in 37 states. This compares to AT&T and Verizon with about 46 and 32 million landline customers, respectively. The deal would enable the firms to reduce expenses in the wake of the annual 10 percent decline in landline usage as people switch from landlines to wireless and cable connections. Expected annual cost savings total $575 million; additional revenue could come from upgrading Qwest's landlines to handle DSL Internet.
In 2010, about one-fourth of U.S. homes used only cell phones, and cable behemoth Comcast, with 7.6 million residential and business phone subscribers, ranked as the nation's fourth largest landline provider. CenturyTel has no intention of moving into the wireless and cable markets, which are maturing rapidly and are highly competitive.
While neither Qwest nor CenturyTel owns wireless networks and therefore cannot offset the decline in landline customers as AT&T and Verizon are attempting to do, the combined firms are expected to thrive in rural areas where they have extensive coverage. In such geographic areas, broadband cable Internet access and fiber-optics data transmission line coverage are is limited. The lack of fast cable and fiber-optics transmission makes voice over Internet protocol (VOIP)-Internet phone service offered by cable companies and independent firms such as Vonage-unavailable. Consequently, customers are forced to use landlines if they want a home phone. Furthermore, customers in these areas must use landlines to gain access to the Internet through dial-up access or through a digital subscriber line (DSL).
Discussion Questions
1. How would you describe CenturyTel's business strategy? Be specific.
2. Describe the key factors both external and internal to the firm that you believe are driving this strategy.
3. Why might the acquisition of Qwest be described as defensive?
Case Study Short Essay Examination Questions
Oracle Continues Its Efforts to Consolidate the Software Industry
Oracle CEO Larry Ellison continued his effort to implement his software industry strategy when he announced the acquisition of Siebel Systems Inc. for $5.85 billion in stock and cash on September 13, 2005. The global software industry includes hundreds of firms. During the first nine months of 2005, Oracle had closed seven acquisitions, including its recently completed $10.6 billion hostile takeover of PeopleSoft. In each case, Oracle realized substantial cost savings by terminating duplicate employees and related overhead expenses. The Siebel acquisition accelerates the drive by Oracle to overtake SAP as the world's largest maker of business applications software, which automates a wide range of administrative tasks. The consolidation strategy seeks to add the existing business of a competitor, while broadening the customer base for Oracle's existing product offering.
Siebel, founded by Ellison's one-time protégé turned bitter rival, Tom Siebel, gained prominence in Silicon Valley in the late 1990s as a leader in customer relationship management (CRM) software. CRM software helps firms track sales, customer service, and marketing functions. Siebel's dominance of this market has since eroded amidst complaints that the software was complicated and expensive to install. Moreover, Siebel ignored customer requests to deliver the software via the Internet. Also, aggressive rivals, like SAP and online upstart Salesforce.com have cut into Siebel's business in recent years with simpler offerings. Siebel's annual revenue had plunged from about $2.1 billion in 2001 to $1.3 billion in 2004.
In the past, Mr. Ellison attempted to hasten Siebel's demise, declaring in 2003 that Siebel would vanish and putting pressure on the smaller company by revealing he had held takeover talks with the firm's CEO, Thomas Siebel. Ellison's public announcement of these talks heightened the personal enmity between the two CEOs, making Siebel an unwilling seller.
Oracle's intensifying focus on business applications software largely reflects the slowing growth of its database product line, which accounts for more than three fourths of the company's sales.
Siebel's technology and deep customer relationships give Oracle a competitive software bundle that includes a database, middleware (i.e., software that helps a variety of applications work together as if they were a single system), and high-quality customer relationship management software. The acquisition also deprives Oracle competitors, such as IBM, of customers for their services business.
Customers, who once bought the so-called best-of-breed products, now seek a single supplier to provide programs that work well together. Oracle pledged to deliver an integrated suite of applications by 2007. What brought Oracle and Siebel together in the past was a shift in market dynamics. The customer and the partner community is communicating quite clearly that they are looking for an integrated set of products.
Germany's SAP, Oracle's major competitor in the business applications software market, played down the impact of the merger, saying they had no reason to react and described any deals SAP is likely to make as "targeted, fill-in acquisitions." For IBM, the Siebel deal raised concerns about the computer giant's partners falling under the control of a competitor. IBM and Oracle compete fiercely in the database software market. Siebel has worked closely with IBM, as did PeopleSoft and J.D. Edwards, which had been purchased by PeopleSoft shortly before its acquisition by Oracle. Retek, another major partner of IBM, had also been recently acquired by Oracle. IBM had declared its strategy to be a key partner to thousands of software vendors and that it would continue to provide customers with IBM hardware, middleware, and other applications.
-Why might the acquisition of Qwest be described as defensive?

An Acquisition Plan Entails All of the Following Except for

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge