BenQ Corp.'s Failed Acquisition of Siemens' Mobile Devices Division
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Case Code: BSTR250 Case Length: 17 Pages Period: 2005-2006 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: BenQ Corp,Siemens AG Industry: Consumer Electronics Countries: Worldwide Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Acquisition
Going Global
In April 2005, Siemens' mobile devices division reported worldwide sales of 9.3 million units and US$ 179 million in losses for the first quarter of 2005. With a turnaround seeming impossible to achieve, Klaus Kleinfeld (Kleinfeld), the CEO of Siemens, announced that Siemens was looking to sell the mobile devices division. He also stated that Siemens might retain a minority stake in the division.
However in June 2005, BenQ announced that it had acquired the whole stake in Siemens' mobile devices business. It renamed the division BenQ Mobile GmbH (BenQ Mobile). The acquisition, effective from October 1, 2005, created one of the world's largest mobile handset makers.
BenQ Chairman & CEO, K.Y. Lee (Lee) said, "With the acquisition of Siemens's mobile phones business, we are rapidly approaching our goal to become one of the world's leading players in the mobile phone industry...
Post-Acquisition
In the months following the acquisition, several problems emerged. In early 2006, BenQ Mobile undertook a series of cost-cutting measures; it closed down a design center in Ulm, Germany, sold the research and development facility in Aalborg, Denmark to Motorola and brought all research and development work to Munich.
The company estimated that these measures would reduce expenditures considerably and it would be able to make a profit in the fourth quarter of 2006. The first BenQ Siemens brand mobile phones were unveiled in January 2006.
The new models, which included the EF81, the S68, and the S88, were feature-rich with camera and Bluetooth capabilities. In March 2006, the BenQ-Siemens P51, a smartphone, was launched. However, customer response to the new products was lukewarm...
Why Did the Acquisition Fail?
Many reasons were attributed for the failure of the new company. BenQ's acquisition of Siemens' mobile devices business was a rare case of a small entity acquiring a larger unit.
According to Y.H Yeh (Yeh), professor and director of Graduate Institute of Finance at Fu-Jen Catholic University, Taiwan, in cases where the buyer is smaller than the bought, it is essential for the acquiring company to be financially sound and have healthy operations. "That means growing strong comes before growing big. You must have enough money to deal with future uncertainties," said Yeh.
BenQ's August 2005 sales were 21% lower when compared to the same period the previous year.
The fall in sales was mostly because of the loss of its biggest mobile phone customer - Motorola. BenQ's attempts to expand its branded business seemed to have affected its OEM business, with several customers starting to see it as a potential competitor...
The Aftermath
The bankruptcy of BenQ Mobile and the consequent loss of about 3,000 jobs created a furor in Germany. Both Siemens and BenQ were held responsible for the debacle. The German public felt that Siemens was guilty of creating false hopes that the loss making unit would be saved. "From an economic point of view, Kleinfeld perhaps acted in the correct manner, but his reputation as someone who can turn around companies in a tough but always fair way has been lost," said an editorial in Financial Times Deutschland. There were also reports suggesting that Siemens sold the division because closing it down would have tarnished its reputation...
Outlook
In June 2006, Siemens announced that its telecom network business would be spun off as a joint venture with Nokia. In October 2006, Siemens announced that it was selling its optical network terminal assets and intellectual property to TXP Corp. With BenQ Mobile filing for bankruptcy, its corporate customers started severing links with the company. T-Mobile, the company's largest customer, ended its outsourcing contracts. Later, Vodafone followed suit...
Exhibits
Exhibit I: Siemens' Business Areas
Exhibit II: Financial Information on Siemens
Exhibit III: Financial Information on BenQ
Exhibit IV: BenQ's Subsidiaries and Business Areas
Exhibit V: BenQ - Siemens Visual Identity - Squound
Exhibit VI: Some BenQ Siemens Mobile Phone Models
Exhibit VII: Competition and Market Share in 2005 - Mobile Handsets (All Standards)
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