Leveraging IT With Mergers--And Divestitures - InformationWeek
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2/4/2005
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Leveraging IT With Mergers--And Divestitures

Market and financial dynamics last week drove SBC Communications to buy AT&T, Procter & Gamble to acquire Gillette, and Citigroup to sell its Travelers unit to MetLife. IT also played a role. Its absorption into the very fabric of business has turned it into an additional force underlying acquisition and divestiture decisions.

"IT drives companies to consolidate," says Haim Mendelson, director of the Center for Electronic Business and Commerce at the Stanford Graduate School of Business. "Core processes and systems can be leveraged over a large scale, reducing the average cost of transactions and making the combined companies more competitive."

Amalgamating IT functions after a merger remains a challenge, but technologies such as middleware, Web services, and XML simplify the linking of disparate systems. "The cluster of common functionality in most companies means that you can get a very good running start in integrating systems," says Benjamin Grosof, assistant professor of E-commerce and IT at the MIT Sloan School of Management.

But IT's inability to solve complex problems also can lead to divestitures. One example: Citigroup never created a supermarket of personal finance products, which industry experts say could be a factor in its decision to sell the Travelers insurance business. Technology, Mendelson says, has yet to replicate the advice a broker can give clients.

Eric Chabrow


Long-Distance Era May End

The move last week by Baby Bell SBC Communications Inc. to acquire AT&T, its former parent, for $16 billion is the latest step in a wave of mergers and acquisitions that are reshaping the telecommunications industry. The result is likely to be a handful of large full-service vendors that offer businesses and consumers a suite of wired and wireless voice, data, and video services.

In December, Sprint, the nation's No. 3 long-distance company, said it would buy Nextel Communications Inc. in an effort to focus on wireless services. That followed the completion of Cingular Wireless' acquisition of AT&T Wireless last year. And late last week, Qwest Communications International Inc. reportedly made a bid to buy MCI, the nation's second-largest long-distance company. Speculation also surfaced that Verizon Communications may make a bid for MCI. The completion of deals like these would spell the end of the independent long-distance industry.

The company that ends up with MCI would be in a position to compete head to head with SBC in just about every market. These developments will pressure other telecom companies to find partners or acquire rivals, says Dave Passmore, research director at the Burton Group.


SBC CEO Ed Whitacre, left, and AT&T CEO David Dorman shake hands.

SBC CEO Ed Whitacre, left, and AT&T CEO David Dorman shake hands.

Photo by Nancy Kaszerman/Zuma Press

SBC's acquisition of AT&T should take at least a year to win regulatory approval. By buying the nation's leading provider of business networks, SBC will be able to offer a more complete menu of services by combining AT&T's national and international business services with SBC's local, broadband Internet access, and wireless services. SBC says it will recover most of the costs of the acquisition by achieving $15 billion in synergies through new revenue, operational efficiencies, and nearly 13,000 job cuts.

For the telecom companies' business customers, the first change they may see as a result of the SBC-AT&T deal is a new account representative. It's not likely that SBC will make major changes to the services AT&T sells to businesses. The account-rep question concerns some. "I hope nothing changes," says James Romines, IT director of the Shaner Hotel Group. "We have worked closely with our account rep for five or six years, and we have a great relationship."

Michael Dyson, IT director at Construction Specialties Inc., is more interested in what will happen to the AT&T brand. If SBC abandons the AT&T moniker, it could signify a change in policies and principles. "If a sales rep comes in and says, 'I'm from SBC,' they'll have to jump through the hoops like any other vendor," he says. "But AT&T doesn't have to do that. They don't have anything to prove."

In the long run, industry consolidation could mean more one-stop shopping choices for business customers. Says David Willis, VP of technology research services at Meta Group: "IT managers should keep their contracts short, not overcommit to any one carrier, use multiple carriers, and play the market for a while and see how things shake out."

Paul Travis

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