What is behind a cross-functional acquisition?
Cross-functional acquisition connects organizations from diverse domains, converging together their knowledge, expertise, and experience to support work-interdependency. The formation of a cross functional acquisition furthers the cooperation and collaboration among various teams in order to propel the company’s success.
In present day scenario, as the companies are becoming increasingly technology-dependent with diverse functions, the need for cross-functional cooperation through teams, groups or acquisitions is also growing.
A cross-functional team requires a group of people from different functional expertise, making efforts for achieving a common goal. The cross-functional team possibly comprises individuals from diverse roles like marketing, finance, operations, and human resources etc.
Moreover, a cross-functional group can include people from various levels of the hierarchy of an organization.
Benefits of cross-functional acquisition
Pooling of resources
As Cross-functionality induces organizations or organizational functions being brought together to achieve an aim, the resultant cross-functional organization or the group has resources and knowledge from diverse functional background. Moreover, a cross-functional organization aims to utilize resources from more than one organization and channelizing the same towards a common goal. This leads to what might be called “pooling” of resources and knowledge.
Broadened viability study
The evolution of cross-business collaboration tools and techniques over the past few years have the potential to yield much improved results. It offers a broadened view of viability study than conventional research methods and facilitates the assessment of the strategic and cultural fit while boosting the integration planning for potentially rich opportunities.
In addition to this, the cross- functional acquisitions bring fresh insights contributing for the innovative solutions and boost development. The collaborative efforts of the team members provide a platform to showcase their skills and knowledge and contribute towards the solutions more promptly.
Improved management practices
Cross-functionality requires putting teams together, thereby putting management skills to assessment. Managing teams is an art that can be developed and enhanced by learning through involvements and experiences. Working with people from diverse work functions and work styles propels the development of distinct skills for effectively leading a cross-functional project undergoing unique challenges.
Cross-functional environment induces the risk of like-mindedness of the people. Developing harmony and bringing the best out of the people is a challenge. On the brighter side, the development of harmony ensures more reliant growth and accepting bigger challenges by developing a sense of unity and cooperation.
Let us now discuss the offer proposed by AGL Energy Limited to acquire Southern Phone Company Limited. The acquisition is an example of cross-functional acquisition as both companies serve in different business sectors in Australia.
AGL Energy Limited (ASX: AGL)
AGL offers to acquire Southern Phone Company Limited
Being a leader in the integrated energy business, AGL Energy Limited (ASX: AGL) operates the largest private electricity generation portfolio in Australia. The company accounts for approximately 20% of the total generation capacity within Australia’s National Electricity Market, with a total capacity of 10,413 MW.
The company has been operating for more than 180 years by inducing innovation and strategically prioritizing growth, transformation and social license.
The company actively contributes towards gas and electricity wholesale markets by holding 3.7 million customer accounts, comprising of residential, small and large business and wholesale customers.
Recently, the company announced that it has entered into a conditional agreement offering to acquire Southern Phone Company Limited (SPC) as part of AGL’s plans to pursue growth in the convergence of energy and data. SPC is one of the largest regional telecommunications businesses in Australia, with over 100,000 customers countrywide. The company believes that the proposal shall bring important benefits to its customers.
Under the offer, all issued capital of SPC would be acquired from its present 35 local council shareholders for $27.5 million, subject to several conditions including acceptance of AGL’s offer by SPC shareholders.
The company CEO and Managing Director, Mr Brett Redman reads,
“AGL’s first step into the broadband and data sector, which is part of our growth strategy, builds on our strong regional presence as an energy retailer and SPC’s telecommunication services and capabilities”
The company believes that with the convergence of energy and data, the acquisition shall help to develop new products and services in order to meet the needs of increasingly connected customers.
What AGL offers to South Phone is an all cash offer of $27.5 million, which shall further deliver a return of $785,714 on company’s each shareholder’s total investment of $2.
Infratil Limited, based in New Zealand, deals in transport, social infrastructure, and energy, is selling 80% interest in its Perth Energy business to AGL for cash proceeds of $53.3 million. Final proceeds to be adjusted for normal working capital and net debt adjustments.
The company reported a strong operating and financial performance during the FY19 ended on June 30, 2019 with underlying profit after tax of $1,040 million, up 2% and principally determined by electricity portfolio. In addition to this, the company’s dividend per share was 119 cents, up 2 cents per share and includes a final dividend of 64 cents per share.
Figure 1 AGL Stock Performance in last year (Source: ASX)
At the market close on 16th October 2019, the Company's stock was trading at a price of $19.450, up 0.569% intraday, with a daily volume of ~1,521,437 and a market capitalization of approximately $12.64 billion. The stock has a 52 weeks high price of $23.210 and a 52 weeks low price of $17.440 with an average volume of ~1,935,161.
Southern Phone Company (SPC)
Southern Phone Company receives multiple awards
SPC provides fixed line, mobile and Internet communications services in Regional Australia. It envisions to provide reasonably priced telecommunications services to regional communities and to share the company’s success with them.
Recently, Southern Phone Company Limited was awarded the Regional Champion Award as part of Australian Communications Consumer Action Network’s (ACCAN) 10 Year Anniversary Awards as a recognition of the company’s efforts on supporting the phone and internet needs of regional Australians.
Following the offer to acquire Southern Phone Company Limited, the company looks forward to transforming into a major and broader essential service provider by providing solutions to the evolving needs of its customer. As a cross-functional acquisition, adoption of the best practices for collaboration to develop a cooperative organizational culture is integral.
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