Strategic Alliance

1. Strategic
Alliances
and
Acquisition

2. Strategic Alliance
The global race to make a presence in the different national market.
The race to seize the opportunity on the frontier of technology development.
Meaning:-
In Strategic Alliance, each firm remains independent, there is no joint ownership but they
basically share information and cooperate with each other.

3. Examples
American Company Belgium Company

4. Advantages
Acquiring New Skills And Resources.
Economies of Scale
Enhancing Competitiveness
Diversification of Risk
Setting New Standards
Entering into New Foreign Market

5. Modes
R&D Partnership
Supply Chain Partnership
Co-Production
Outsourcing
Franchising
Licensing

6. Reasons of Failures
Negotiation
Fear of Competitions
Patent
Managerial Complexity

7. Acquisition
An acquisition occurs when the acquirer company obtains more than 50% share of
target company.
Both the companies exist, both boards continue to operate but the controlling rights
gets vested in acquirer company.
Friendly Acquisition
Hostile Acquisition

8. Acquisition Strategy
1. Adjacent Industry Strategy (P&G acquired Charmin and Clairol)
2. Diversification Industry Strategy
3. Service Strategy
4. Geographic Growth Strategy
5. Industry Roll Up Strategy
6. Market Window Strategy
7. Product Supplementation
8. Vertical Integration

9. Mergers
and
Joint-Venture

10. Mergers
▪ A transaction where two firms agree to integrate their operations
on a relatively co-equal basis because they have resources and
capabilities that together may create a STRONGER
COMPETITIVE ADVANTAGE.
▪ The combining of two or more companies, generally by offering
the stockholders of one company securities in the acquiring
company in exchange for the surrender of their stock.
▪ Example: Company A + Company B => Company C

12. Process Of Merger
▪ Approval of Board of Directors
▪ Information to the Stock Exchange
▪ Application in the High Court
▪ Shareholders and Creditors meetings
▪ Sanction by the High Court
▪ Filling of the Court Order
▪ Transfer of the assets and liabilities
▪ Payment by cash and securities
Maximum Waiting Period: 210 days from the filling of notice or the order of
Commission- whichever gets approved earlier.

13. Types of Merger
▪ Horizontal Merger
It refers to two firms operating in same industry or producing ideal products
combining together. For e.g., in the banking industry in India, acquisition of Times
Bank by HDFC Bank, Bank of Madura by ICICI Bank, Nedungadi Bank by Punjab
National Bank etc. in consumer electronics, acquisition of Electrolux’s Indian
operations by Videocon International Ltd., in BPO sector, acquisition of Daksh by
IBM, Spectramind by Wipro etc. The main objectives of horizontal mergers are to
benefit from economies of scale, reduce competition, achieve monopoly status and
control the market.
▪ Vertical Merger
A vertical merger can happen in two ways. One is when a firm acquires another firm
which produces raw materials used by it. For e.g., a tyre manufacturer acquires a
rubber manufacturer, a car manufacturer acquires a steel company, a textile
company acquires a cotton yarn manufacturer etc. Another form of vertical merger
happens when a firm acquires another firm which would help it get closer to the
customer. For e.g., a consumer durable manufacturer acquiring a consumer durable
dealer, an FMCG company acquiring m advertising company or a retailing outlet etc.

14. Types of Merger
▪ Conglomerate merger
It refers to the combination of two firms operating in industries
unrelated to each other. In this case, the business of the target
company is entirely different from those of the acquiring company.
For e.g., a watch manufacturer acquiring a cement manufacturer,
a steel manufacturer acquiring a software company etc. The main
objective of a conglomerate merger is to achieve i big size.
▪ Concentric merger
It refers to combination of two or more firms which are related to
each other in terms of customer groups, functions or technology.
For eg., combination of a computer system manufacturer with a
UPS manufacturer.

15. Types of Merger
▪ Forward merger
In a forward merger, the target merges into the buyer. For e.g.,
when ICICI Bank acquired Bank of Madura, Bank of Madura which
was the target, merged with the acquirer, ICICI Bank.
▪ Reverse merger
In this case, the buyer merges into the target and the shareholders
of the buyer get stock in the target. This is treated as a stock
acquisition by the buyer.
▪ Subsidiary merger
A subsidiary merger is said to occur when the buyer sets up an
acquisition subsidiary which merges into the target.

16. Merger – WHY & WHY NOT??

17. Joint Venture
▪ The cooperation of two or more individuals or businesses in which
each agrees to share profit, loss and control in a specific
enterprise.
▪ A commercial enterprise undertaken jointly by two or more parties
that otherwise retain their distinct identities.

19. Steps to a Successful Joint Venture
IDENTIFY
VALUATE & CONSTRUCT
DEFINE & CREATE
ENSURING
FINALIZE

20. Advantages of Joint Venture
▪ Accessing additional financial resources
▪ Sharing the economic risk with CO-VENTURER
▪ Widening economic scope fast
▪ Tapping newer methods, technology, and approach you don’t have
▪ Building relationships with vital contacts

21. Disadvantages of Joint Venture
▪ Shared profit
▪ Diminished control over some important matters
▪ Undesired outcome of the quality of product or project
▪ Uncontrolled or unmonitored increase in the operating costs

22. Summary
Joint Ventures
▪ When two companies invest funds into creating a third, jointly
owned company, that new subsidiary is called a joint venture.
Because the joint venture can access assets, knowledge and funds
from both of its partners it can combine the best features of those
companies without altering the parent companies. The new
company is an ongoing entity that will be in business for itself, but
profits are owned by the parents.
▪ Example :- Sony-Ericsson

23. Summary
Strategic Alliance
▪ A strategic alliance is a legal agreement
between two or more companies to
share access to their technology,
trademarks or other assets. A strategic
alliance does not create a new
company.
▪ Example :- Apple & IBM
Merger
▪ A merger is a deal to unite two existing
companies into one new company
▪ Merger is done on a permanent basis.
Generally, it is done between two
companies. However, it can also be
done among more than two companies.
▪ During merger, an acquiring company
and acquired companies come together
to decide and execute a merger
agreement between them.
▪ Example :- Mahindra & Mahindra
acquires Ssangyong