Vodafone has offered to purchase Cable & Wireless Worldwide (C&WW), with Vodafone paying 38p per share, making this deal worth £1.044bn.

This deal, however, was rejected by C&WW’s largest shareholder, Orbis, within hours, as the price was not high enough, despite the 38p per share offer representing a 92% premium to the level of C&WW’s share price before the bid interest emerged in February. A spokesperson for Orbis said:

‘Although we believe the C&WW management team has handled the bid process responsibly, we have declined to give an irrevocable undertaking or letter of intent to the support the transaction.’

However, with the only other interested party, Tata Communications withdrawing, Vodafone was the only remaining bidder. As such, many suggest that this deal is a good one for the struggling business, despite Orbis’ claim that it under-values the business.

Adding a UK fixed-line cable to Vodafone’s business will increase its capacity, which is much needed at this moment in time with the added demand for mobile data from increased Smartphone usage. Cost savings are also expected from this merger, as the company will no longer have to pay to other companies to lease its fixed-line capacity.

The bid from Vodafone did help C&WW’s trading performance, which had been worsening for some time and so some shareholders will be glad of the bid. Its shares were up following this deal and it went to the top of the FTSE250. Vodafone will also benefit, as this merger would make it the second largest combined fixed and mobile line operator in the UK.

The trends of these two companies in recent years have been very much in contrast. C&WW had been the larger of the two firms up until 1999, yet the price Vodafone would now pay for the company represents a mere 1% of its current market value. The following articles consider this merger.

Vodafone bids for Cable and Wireless: The end of the line The Economist (24/4/12)
Questor shares tip: Vodafone deal looks goodThe Telegraph, Garry White(23/4/12)
Vodafone puts paid to once-revered C&WW Financial Times, Daniel Thomas (23/4/12)
Top CWW shareholder rejects sale to Vodafone Independent, Gideon Spanier (24/4/12)
CWW accepting Vodafone’s £1bn bid is a good call The Telegraph, Alistair Osborne (23/4/12)
Vodafone agrees £1bn deal for Cable & Wireless Worldwide Guardian, Julia Kollewe and Juliette Garside (23/4/12)
Vodafone agrees £1bn takeover of C&W Worldwide BBC News (23/4/12)

“There are ‘incredible economies of scale in cloud computing’ that make it a compelling alternative to traditional enterprise data centers.” According to the first article below, cloud computing represents a step change in the way businesses are likely to handle data or use software. Rather than having their own servers with their own programs, they use a centralised service or ‘public cloud’, provided by a company such as Microsoft, Google or Amazon Web Services. The cloud is accessed via the Internet or a dedicated network. It can thus be accessed not only from company premises but by mobile workers using tablets or other devices and thus makes telecommuting more cost effective.

There are considerable economies of scale in providing these computing services, with the minimum efficient scale considerably above the output of individual users. By accessing the cloud, individual users can benefit from the low average costs achieved by the cloud provider without having to invest in, and frequently update, the hardware and software themselves.

In the case of large companies, rather than using a public cloud, they can use a ‘private cloud’. This is hosted by the IT department in the company and achieves economies of scale at this level by removing the need for individual departments to purchase their own software and servers. Of course, the costs of providing the cloud is borne by the company itself and thus the benefits of lower up-front IT capital costs are reduced. This is clearly a less radical development and is really only an extension of the policy of many companies over the years of having centralised servers holding data and various software packages.

In autumn 2010, EMC Computer Systems commissioned economists at the Centre for Economics and Business Research (cebr) to quantify the full impact that cloud computing will have over the years ahead. According to the report, The Cloud Dividend:

The Cebr’s research calculates that €177.3 billion per year will be generated by 2015, if companies across Europe’s five largest economies continue to adopt cloud technology as expected.

The Cebr found that the annual economic benefit of cloud computing, by 2015, will be:
• France – €37.4 billion
• Germany – €49.6 billion
• Italy – €35.1 billion
• Spain – €25.2 billion
• UK – €30.0 billion

Will the ability of cloud computing to drive down the costs of IT mean that a new revolution is underway? Just how significant are the economies of scale and are they likely to grow as cloud providers themselves grow in size and experience? The following articles look at some of the issues.

Articles
Microsoft: ‘Incredible Economies Of Scale’ Await Cloud Users InformationWeek, Charles Babcock (11/5/11)
Cloud in 2011: A bright new dawn…or a shadow hanging over IT pros? The Register, Lucy Sherriff (28/5/11)
Bubbles and Golden Ages So Entrepreneurial, Nick Hughes (24/5/11)

Reports and information
The Cloud Dividend EMC²
Cloud Computing Wikipedia

You might think that small environmentally-friendly companies would be moving into the green energy market: that setting up a wind farm, for example, would be a perfect business opportunity for a small company. In fact, the big companies are taking over this market. As the Der Spiegel article below states:

Europe’s wind energy sector is currently experiencing a major transformation. New massive offshore wind parks are soon expected to crop up off Europe’s coastline. Big companies like Siemens and General Electrics are increasing their stakes in a market worth billions. But experts warn that a new energy oligopoly may soon emerge.

So what is it about the wind energy market that makes it suitable for an oligopoly to develop? The two articles explore this question.

Winds of Change Der Spiegel, Nils-Viktor Sorge (1/11/10)
GE and Siemens Outpacing Wind Pioneers, Becoming Clean Energy’s “New Oligopoly” Fast Company, David Zax (2/11/10)

Ginsters is a large producer of pasties in Cornwall. Most of its ingredients come from Cornwall, but the pasties are sold throughout Britain. But, not surprisingly, they are also sold in Cornwall. In fact, there is a large Tesco virtually next door to the Ginsters’ pasty plant and, as you can imagine, it does a good trade in Ginsters’ pasties, pies and sandwiches. After all, they are a local product.

But are they delivered directly from the Ginsters’ factory? No they are not. In fact, they are sent by lorry to the Avonmouth distribution depot, some 125 miles away, only to be sent back again to the Tesco supermarket next door! So does it make economic sense to incur all the costs of transporting the pasties 250 miles only to end up virtually where they started?

It is a similar story with Rodda’s Cornish clotted cream. It is made with Cornish milk but is also sold nationwide. In this case it is transported some 340 miles to get to another Tesco supermarket virtually next door to the Rodda plant.

The following articles and podcast consider the logistics of manufactured food distribution, and ask whether private costs are the only thing that should be taken into account when judging the sense of the system.

Articles
From here to eternity: 340-mile journey for clotted cream made two miles away Guardian, Steven Morris (3/9/10)
Food miles row as pasties travel 250 miles to the supermarket next door This is Cornwall (30/8/10)
Supermarket food mileage ‘completely bonkers’ BBC Today Programme, Tim Lang (30/8/10)

August is usually a quiet month for mergers and acquisitions. But not this August! As the linked Independent article below states:

Korea National Oil Corporation’s £1.87bn hostile bid for Dana Petroleum yesterday was just the latest in a surge of activity taking merger and acquisition (M&A) levels to a nine-month high.

Despite edgy economic data from the US, global deal-making has already topped $197bn (£127bn) so far this month, and is on course to beat the August record of $260bn set in 2006, according to Thomson Reuters. This week’s $89.8bn total is the highest weekly total since early November.

During the global recession of 2008/9, M&A activity slumped. In 2007, global M&As were worth $4162bn. In 2009 they were worth only $2059bn. Not only were companies cautious of acquiring other companies in a period of great economic uncertainty, but finance for deals was hard to obtain. Now, with many companies having cut costs and having much healthier balance sheets, they are in a position to bid for other companies. And banks too are much more able and willing to provide the finance to support takeovers.

So does this signify a continuing surge in M&A activity? Or are the August figures likely to be a ‘blip’, with fears of a double-dip recession dampening any renewed takeover fever? The articles below look at the recent cases and at the factors influencing current M&A activity.

Articles
Stock markets catch deal fever as M&A booms again Independent, Sarah Arnott (21/8/10)
BHP, Intel, RSA shatter usual August M&A lull Reuters, Quentin Webb (20/8/10)
Global M&A volume could be highest in August International Business Times, Surojit Chatterjee (21/8/10)
Mergers and acquisitions mania disrupts bankers’ summer breaks Guardian, Elena Moya (21/8/10)
Merger mania predicted as cash-rich firms stalk takeover targets Observer, Richard Wachman (22/8/10)
M&A Signal Higher Stock Prices Ahead Minyanville, Terry Woo (20/8/10)
From slowest to busiest TodayOnline (21/8/10)

Data and Reports
International
The era of globalized M&A: Winds of change Thomson Retuers and J.P.Morgan (June 2009)
Preliminary M&A Financial Press Release 2Q10 Thomson Reuters (25/6/10)
World Investment Report 2010: Annex Tables United Nations Conference on Trade and Development (UNCTAD) (see tables 9–16)
UK data
Mergers and Acquisitions involving UK companies Office for National Statistics
Mergers & Acquisitions data Office for National Statistics
Mergers and acquisitions involving UK companies: 1st Quarter 2010 Office for National Statistics (2/6/10)
Mergers and Acquisitions Tables Office for National Statistics

Two of America’s airlines have agreed to merge to form the world’s largest carrier. The deal between United and Continental Airlines is worth £2.1 billion and the management of the two companies hope that the new airline, to be called United Airlines, will bring cost savings of some £800 million per year. Last year, the two companies lost a total of £900 million. It is also hoped to increase revenues by providing more routes and more effective competition against rivals, such as Delta Air Lines.

But just how significant will any economies of scale be and to what extent will they involve job losses? Certainly the merger has been greeted with caution by the Air Line Pilots Association and unions such as the International Association of Machinists and Aerospace Workers. Also, will the larger company be able to compete more effectively to the benefit of consumers, or will the increased market power see a rise in fares?

And this is not the only airline merger. In April, British Airways and Iberia of Spain signed a deal to merge, thereby creating one of the world’s biggest airlines. Other mergers are expected as airlines battle to cope with rising costs and lower passenger numbers in the wake of the global recession. So will such mergers benefit passengers, or will it simply result in less choice and higher fares? The following articles look at the issues

Articles
1st priority for new United-Continental combo: Keep customers, workers happy Chicago Tribune, Julie Johnsson (3/5/10)
Debating future of US Airways Philadelphia Business Today, Linda Loyd (4/5/10)
Arpey points out good, bad of United-Continental deal The Dallas Morning News, Terry Maxon (3/5/10)
US airline merger creates world’s biggest carrier Independent, Nick Clark (4/5/10)
We can’t fix fares, says chief of merging US airlines Telegraph, James Quinn (3/5/10)
United and Continental Airlines to merge BBC News (3/5/10)
British Airways and Iberia sign merger agreement BBC News (8/4/10)
Are mergers good for airlines? BBC News, Edwin Lane (4/5/10)
United boss Glenn Tilton on Continental merger BBC News (3/5/10)
United and Continental bosses’ press conference on merger BBC News (3/5/10)

Data
Aviation Data & Statistics Federal Aviation Administration
TransStats RITA, Bureau of Transportation Statistics
Airline and Airport Statistics European Regions Airline Association

The UK has adopted a relatively open market policy towards takeovers of domestic companies by ones from overseas. True, takeovers have to be in accordance with competition legislation, namely the 2002 Enterprise Act, or, in the case of takeovers affecting competition in the UK and at least one other EU country, the EU 2004 merger control measures and Article 102 of the Lisbon Treaty. The EU regulations disallow mergers if they result in ‘a concentration which would significantly impede effective competition, in particular by the creation or strengthening of a dominant position’ (see Economics (7th ed) pages 370–3 or Economics for Business (5th ed), pages 443–50). The UK legislation is similarly concerned with a substantial lessening of competition. But in both cases, competition policy is not concerned with whether the takeover is by a foreign company rather than a domestic one. So should we be concerned?

Interest in this question increased recently with the takeover of Cadbury by Kraft. Many saw it as yet one more example of British companies being taken over by foreign ones. Other examples include the takover in 2008 of Scottish and Newcastle (brewers of Courage, John Smith’s, Fosters and Kronenbourg) by the Carlsberg/Heineken consortium; the sale of the Rover group, with Minis now made by BMW, and Jaguar Land Rover now owned by Tata Motors of India; and the takeover in 2007 of Corus, the Anglo-Dutch steelmaker, by India’s Tata Steel. One of the key complaints about foreign takeovers is when they result in job losses. Although Kraft gave assurances that the Cadbury plant at Keynesham, near Bristol, would remain open, as soon as the takeover was completed, Kraft announced the closure of the Keynesham factory. Tata Steel earlier this year decided to mothball its steelworks at Redcar, on Teesside. It may never re-open.

But there are many arguments on either side about the desirability of takeovers by foreign companies. On the positive side, they may result in investment in new plant and new products and a faster growth of the company. This could result in more employment, not less. They may bring in foreign expertise and give access to new technology; they may be able to achieve various economies of scale through joint operations; productivity may increase. As the article from The Economist states:

For 30 years the consensus has been that Britain has more to gain than to lose from its open embrace of globalisation. … Britain has enjoyed a strong inflow of foreign direct investment. It has consistently attracted more than any other European country. A report on British manufacturing for Policy Exchange, a centre-right think-tank, notes that the openness of the economy “makes Britain a magnet for foreign companies looking for acquisitions on which they can build their manufacturing operations” for Britain and elsewhere.

On the negative side, there may indeed be job losses as ‘rationalisation’ takes place. Head office functions and key research facilities may move abroad. Hostile takovers may result in the stripping of assets for short-term gain, thereby undermining the loing-term viability of the company.

The article from The Economist explores these issues.

Article
Small island for sale The Economist (25/3/10)

Data
A summary of cross-border mergers, acquisitions and disposals by UK companies and foreign companies in the UK can be found at: Mergers & Acquisitions data Office for National Statistics
For statistical bulletins and press releases see: Mergers and Acquisitions involving UK companies Office for National Statistics
For international data on foreign inward and outward direct investment see: Interactive database on Enterprise and Investment UNCTAD
See also: World Investment Report UNCTAD

Ofcom, the communications regulator, is keen to encourage the spread of super-fast broadband through investment in fibre-optic cabling. So far, super-fast broadband is available to around 46 per cent of the UK population. Both Virgin Media (formerly Telewest and NTL) and BT have invested in fibre optic cables, but Ofcom is keen to extend the use to rival companies.

It proposes two methods: the first is to give competitors access to BT’s cables; the second is to allow competitors to install their own cables using BT’s ducts and telegraph poles. In both cases BT would charge companies to use its infrastructure and would be free to set prices so as to ensure a ‘fair rate of return’.

The articles below consider this ‘solution’ and its likely success in developing competition in the super-fast broadband market through competition, or whether BT’s and Virgin’s market dominance will continue to the detriment of consumers. You can also find links below to the Ofcom report and summaries

Articles
BT welcomes Ofcom’s fibre access plans Reuters, Kate Holton (23/3/10)
Ofcom to encourage super-fast broadband Business Financial Newswire (23/3/10)
Ofcom tells BT to open its fibre network ShareCast (23/3/10)
Ofcom wants BT to open up infrastructure Financial Times, Philip Stafford (23/3/10)
Ofcom push to give broadband rivals access to BT tunnels Financial Times, Tim Bradshaw and Andrew Parker (23/3/10)
BT UK Pushes Ofcom to Open Virgin Medias Broadband Cable Ducts SamKnows, Phil Thompson (23/3/10)
BT welcomes Ofcom’s fibre access plans ISPreview, MarkJ (8/3/10)

Report and summaries
Summary: Enabling a super-fast broadband Britain Ofcom (23/3/10)
Review of the wholesale local access market: full document Ofcom (23/3/10)
Review of the wholesale local access market: summary Ofcom (23/3/10)

The European Commission has received three complaints against Google for anti-competitive practices. The complainants are Microsoft’s Ciao, UK price comparison site Foundem and French legal search engine ejustice.fr

“The Commission has not opened a formal investigation for the time being. As is usual when the Commission receives complaints, it informed Google earlier this month and asked the company to comment on the allegations. The Commission closely cooperates with the national competition authorities. No further information can be given at this stage.”

Although the complaints are different (see articles below), the common feature is that Google has used its dominant market position to the detriment of competitors and consumers. Not surprisingly, Google has vigorously defended itself against the accusations.

So just what is the case against Google? Are the complaints justified, or are they merely competitors whinging about their relative lack of success? The following articles look at the facts and the issues.

EU launches antitrust inquiry into Google ‘dominance’ Times Online, Mike Harvey (24/2/10)
Google Says It Faces Competition Complaints in Europe BusinessWeek, Brian Womack and Joseph Galante (24/2/10)
Google faces anti-monopoly probe by European Commission Guardian, Andrew Clark (24/2/10)
Why Europe could prove Google’s undoing Guardian, Bobbie Johnson (24/2/10)
Analysis: not evil? Are you sure? Times Online, Mike Harvey (24/2/10)
Google faces Brussels antitrust scrutiny Financial Times, Richard Waters and Nikki Tait (24/2/10)
EU Opens Antitrust Investigation Into Google. Microsoft’s Fingerprints Are Everywhere. Washington Post, MG Siegler (23/2/10)
Google Hit With Antitrust Probe in Europe PC World, James Niccolai (23/2/10)
Is Redmond The Puppet Master In Google EU Anti-Trust Investigation? search engine land, Greg Sterling (23/2/10)
Google Under Investigation by European Union PCMag, Mark Hachman (24/2/10)
EU inquiry points the searchlight on Google’s methods Telegraph, Kamal Ahmed (24/2/10)
Google under investigation for alleged breach of EU competition rules Telegraph, Kamal Ahmed (24/2/10)

President Obama has proposed a major reform of the US banking system. This follows on from the proposed levy to be imposed on banks’ assets announced a few days ago (see “We want our money back and we’re going to get it”).

There are two elements to the new proposals. The first is to limit the size of banks’ market share. Currently, banks’ deposits are not permitted to exceed 10% of total retail deposits in the USA. This 10% limit would be extended to cover wholesale deposits and other liabilities. The idea is to reduce concentration and increase competition. At present the largest four banks hold over half the total assets of banks in the USA.

The second element involves separating casino banking from retail banking. This would be achieved by barring retail banks from owning or investing in private equity or hedge funds or from engaging in ‘proprietary trading operations’. As the second BBC article below states:

Proprietary trading involves a firm making bets on financial markets with its own money, rather just than carrying out a trade for a client in which only the client’s money is at risk.

This comes close to restoring the Glass-Steagall Act, which was repealed in 1999. The Act, which was passed in 1933 in the wake of the 1929 Wall Street cash and the subsequent Great Depression, separated commercial banking and investment banking. It was designed to prevent customers’ deposits being exposed to the riskier activities of investment banking.

What have been the reactions to President Obama’s announcement? Are these reactions justified? Will the proposals prevent another banking crisis and credit crunch? The following articles explore these questions.

Obama hammers the banks Financial Times, Tom Braithwaite and Francesco Guerrera (22/1/10)
Obama pushes new bank regulation (including video) BBC News (21/1/10)
Q&A: Obama’s bank curbs BBC News, Martin Webber (21/1/10)
Obama announces dramatic crackdown on Wall Street banks (including video) Guardian, Jill Treanor (21/1/10)
Barack Obama bank reforms: Trying to fix a broker society Telegraph, Louise Armitstead and Helia Ebrahimi (23/1/10)
Glass-Steagall lite The Economist (22/1/10)
Obama’s Plan Finally Attacks “Too Big to Fail” The Huffington Post, Neil K. Shenai (21/1/10)
Obama Sizes Handcuffs For Banks Forbes, Liz Moyer (21/1/10)
Obama’s Showdown With Wall Street Forbes, Richard Murphy (22/1/10)
President Obama shows the way Independent (23/1/10)
Wall Street’s $26m lobbyists gear up to fight Obama banks reform The Observer, Andrew Clark (24/1/10)
Obama’s drawn first blood – now it’s the UK’s turn The Observer, Ruth Sunderland (24/1/10)
Gordon Brown to push for ‘Tobin tax’ after Wall Street crackdown Guardian, Larry Elliott and Jill Treanor (22/1/10)
Myners: UK does not need to copy Obama banking reforms Guardian, Andrew Clark, Jill Treanor, Paul Owen (22/1/10)
Debate on London’s banking system The Observer, Will Hutton and Boris Johnson (24/1/10)
What Obama’s bank reforms really mean BBC News blogs, Peston’s Picks, Robert Peston (22/1/10)
Davos 2010: Central bankers seethe behind closed doors BBC News, Tim Weber (29/1/10)