Strategic alliances Joint venture Merger acquisition Strategic Alliances

Strategic alliances Joint venture Merger & acquisition

Strategic Alliances • A Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. • Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise or intellectual property.

Strategic Alliances • The alliance aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts.

Merger • A Merger refers to an agreement between two companies to combine their resources, in order to arise as a more powerful and dominant marker player. • For example, when Air France and KLM-Royal Dutch Airlines merged in May 2004 to form the Air France KLM group, they automatically became continental Europe's largest carrier. • Glaxo Wellcome and Smith. Kline Beecham, both firms ceased to exist when they merged, and a new company, Glaxo. Smith. Kline, was created.

• Another type of acquisition is reverse merger, a deal that enables a private company to get publicly listed in a short time period. • A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. • Cross-border M&A

Reverse merger- example • US-based Trans-India Acquisition Corporation (TIL) has signed an agreement to acquire 80 per cent stake in Hyderabad-based solar photovoltaic modules maker Solar Semiconductor. • The deal is a reverse-merger agreement and valued at around $375 million. • “The merger will help us access the capital market as TIL is an American stock exchangelisted company, ” says Hari Surapaneni, president of Solar Semiconductor

Joint venture • A Joint venture, in contrast, is when two otherwise independent companies join forces in order to cooperate on a common project or in providing a specific service. • In many cases, a new firm or organization is actually created, and both of the independent founders have a stake in this joint company.

Joint venture • All revenue which is not re-invested into the firm is then divided between the founders. A good example of a joint venture is Verizon Wireless. In this case, Verizon teamed up with Vodafone to provide a mobile communication service

Acquisition • Also known as takeover or a buyout • An acquisition is simply when a more dominant company purchases a smaller firm, which also happens to be a competitors. • By removing a key competitor from the market, the larger company increases its dominance.

Acquisition • For instance, in October 2008 delta Air Lines bought northwest airlines and as such, it will eventually phase out the latter's independent brand name • Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a Reverse takeover.

Reasons for strategic alliance • Increased market power • Overcoming entry barriers • Cost of new product development and increased speed to market • Lower risk compared to developing new products • Increased diversification • Reshaping firm’s competitive advantage • Learning and developing new capabilities

Problems in achieving success • • Integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Too much diversification Managers overly focused on acquisitions Too large

Effective Acquisitions • Complementary assets or resources • Friendly acquisitions facilitate integration of firms • Effective due-diligence process (assessment of target firm by acquirer, such as books, culture, etc. ) • Financial slack • Low debt position • Innovation • Flexibility and adaptability