Joint Venture, Merger & Acquisition and Strategic Alliance

1. Prepared by G. Gururajan
Presentation date : 26th April’ 2013
Topic : Growth Strategy – Case study

2. • An organization substantially broadens the scope of one or
more of its business in terms of their respective customer
group, customer functions and alternative technologies to
improve its overall performance.
• Strategy aimed at winning larger market share, even at the
expense of short-term earnings. Four broad growth strategies
types are
• Acquisition
• Merger
• Joint Venture
• Strategic Alliance.
Growth Strategy - Definition

3. • Acquisition is also known as a takeover, is buying of one
company by another company.
• Acquisition is a deal when one company takes over
another company and buyer becomes sole proprietor.
• In legal terms, the target company ceases to survive.
The buyer swallows the company and the buyer's stock
continues to be traded.
Acquisition

4. • Gain Market share
• Enter new markets
• Acquire technology
• Strategic objective
• Utilization of surplus funds
Need for Acquisition

5. Acquisition – Case study
acquired

6. • In 1992 Hutchison Whampoa and its pure business partner
established a company that was awarded a license to
provide the mobile services in Mumbai
• In 2004, Hutchison Whampoa has acquired six mobile
telecommunication operator providing the services in 13 of
India’s 23 telecom circle in 2006.
• By acquiring the BPL cellular services in 2006, the numbers
have increased to 16 out of 23 circles in India.
• Hutchison held 67% of stake and remaining 33% was with
Essar limited and thus it was named as “Hutchison Essar
India Limited”
• Hutch was often praised for their award winning Ads
Facts - Hutch

7. • Operations - 1992
• Circles – 16 circles + license for 6 circles
• Revenue - $ 1282 million
• EBIDTA - $ 413 million (Earning before
interest, depreciation, tax & amortization)
• Operating profit - $ 313 million
• Subscriber base – 29.2 million
• ARPU - Rs. 340.15 (Average Revenue
Per User)
Revenue

8. • In the year 2008, Vodafone acquired the Hutch stake
Hutchison Essar for US$ 11.1 billion.
• It was fourth largest of the year 2007
Vodafone – Hutch deal
Why take over
• Vodafone want to expand their business in Asian
markets.
• India had the 2nd largest market for mobile.
• Growth rate of Indian mobile market was 6 million
subscriber per month.
• Increases vodafone’s presence in higher growth
emerging markets

9. • Hutch wanted to quit Indian operations to finance
their other country operations.
• Hutch – Essar mutual distrust
• Growth of ARPU was relatively less compare the
global market even though the it was increasing trend.
Why Hutch want to sell

10. In merger two firms, agree to move ahead and exist as a single new
company. Merger can be,
• merger of equals : both companies are of equal sizes.
• merger of unequal's : large company merge with smaller one
Voluntary process :
consent of both companies. Name of new merged entity is usually a
combination of both parent companies.
Types of Merger :
 Horizontal Merger
 Vertical Merger
 Concentric Merger
 Conglomerate Merger
Mergers

11. Merger – Case study

12. Since more
no. of private
players
entered
Aviation
sector, there
was a need
for
consolidation
Low cost carriers
Low cost carriers
Low cost carriers
High cost carriers
High cost carriers
High cost carriers

13. • E-ticketing
• Cut on the Complementary service
• No separate staff
• Outsourcing of ground operations
• Saving operating cost, landing cost & sales tax
• Sale of food inside the aircraft
• Selling Advertisement
• Differential ticket pricing
• Non refundable tickets
• No bulk discounts
• Paid initial training to staff
Facts – Air Deccan (Low cost service)

14. • Carved a niche for itself in a short span of time
• Only airline offering premium 1rst class service on domestic
routes
• Modeled on the lines of US carrier Jet Blue
• Targets Sec A and socio-economic classes.
• Great in-flight experience
- Personal valet assistance in luggage handling at airport
- Personalized in-flight entertainment system
- Fashion models as flight attendants
- Designer flight interiors
-Extendable footrests
-3course gourmet cuisine
Facts - Kingfisher

15. • Ever Increasing Cost
• Compromise on quality
hits the brand
• Unviable pricing
• Competition
• Cash crunch
• Leveraging
management and HR
Motivation for merger
• Increasing costs
• Difficulty in maintaining brand
image
• Competition from low-cost
airlines
• Competition from International
Airlines
• Routes network
• License to fly internationally

17. • A joint venture (JV) is a business agreement in which parties agree
to develop, for a finite time, a new entity and new assets by
contributing equity. They share revenues, expenses and assets.
• It is necessary to have a strategic plan in place. In short, both
parties must be committed to focusing on the future of the
partnership, rather than just the immediate returns.
• Joint venture is a separate business entity.
– Participants continue as separate firms
– May be organized as partnership, corporation, or any other
form of business
– Formal long-term contract of 8 to 12 years duration
Joint Venture

18. Maruti Suzuki Joint venture
• Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor
Corporation (SMC), Japan, is a leading manufacturer of
passenger vehicles in India, contributing to about 45% of the
total industry sales in India.
• The Company, formerly known as Maruti Udyog Limited, was
incorporated as a joint venture (JV) between the Government
of India and Suzuki Motor Corporation on 24th February, 1981.
Its first car, the Maruti 800, was rolled out of the Gurgaon
facility on 14th December, 1983.

19. • The largest automobile manufacture in South Asia founded in
1981
• Until recently, 18.28% of the company was owned by the Indian
government, and 54.2% by Suzuki of Japan.
• The success of JV led Suzuki to increase the equity from 26% to
40% in 1987, 50% in 1992 and further to 56.2 in 2011.
• As of May 10, 2007, Govt. of India sold its complete share to
Indian financial institutions. With this, Govt. of India no longer
has stake in Maruti Udyog.
• During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024
were exported.
• Revenue – US$ 3.5 billion (2009)
• In all, over six million Maruti cars are on Indian roads since the
first car was rolled out on December 14, 1983.
Facts – Maruti Suzuki

20. • Suzuki Motor corporation, the parent company is a global leader
in mini & compact cars for 3 decades.
• Suzuki is technical superior, light weight diesel engine and fuel
efficient.
• Nearly 75,000 employees were directly employed by Maruti
Suzuki and its partners
Benefits of JV - Maruti
Benefits of JV - Suzuki
• Larger Indian market
• Monopolistic trade in Indian automobile industry.
• Availability of resources.

23. • Market entry -A strategic alliance can ease entry into a
foreign market.
• Share risk & expenses -firms involved can share risks. Eg: In
early 1990’s film manufacturers Kodak and Fuji joined with
camera manufacturers Nikon, Canon, and Minolta to create
cameras and film for an "Advanced Photo System.
Strategic Alliance

24. • Virgin Group
– one of the world's most recognized and respected brands
• Tata Tele Services Ltd. (TTSL)
– one of India’s leading private telecom service providers
– offers integrated telecom solutions under the TATA Indicom
brand
– uses the latest CDMA technology for its wireless network
• Virgin Mobile India - Virgin-TTSL Strategic alliance:
– a ‘brand franchise’ agreement with TTSL
• Target
– break even in 3 years, at a subscriber base of 5mn
Strategic Alliance – Virgin Mobile & TTSL