class 22 joint ventures 2011_BSBA

class 22 joint ventures 2011_BSBA - 1 BA599 Mergers &...

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BSBA – Spring 2011 1 Prof. David Ravenscraft Kenan-Flagler Business School University of North Carolina Class 22: Joint Ventures – the formation of a new enterprise jointly owned by 2 or more independent parties
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Agenda n Acquisition Alternatives n Bias towards Acquisition n Empirical Evidence on JV and Alliances n Reasons to Align n What JVs need to specify n Valuation of JVs n Keys to JV Success n India JV Case Example
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Business entry options Greenfield or Build Acquisition Joint Venture Strategic Equity Investment Licensing Agreements Entry Strategy No acquisition candidates (New Market / Product) Requires most time Creates Real Option (can start small) Can use for attractive industry with no excess capacity Considerations Candidates available Financials work Quicker option than Build or JV Make sense when distribution and plant set up cost high Use when excess capacity exists Use when control is critical to strategy Acq. candidates not available, legal barriers, indigestible Need key assets/ resources of JV partner Want to share business risk and investment Minority investment in company often with option for more Investments may provide learning, future access to company ownership or other assets Product, Patent or License exchanged for royalty or fee No risk sharing, stipulates what, how, where and for how long license can be sold or used Assets to be licensed provide ready market Contractual Agreements Simplest approach, use if need is concrete Difficult when uncertainty, asset specificity, market imperfections and proprietary information makes it difficult to explicitly write contracts or monitoring or enforcing is costly Low - - - - Commitment/Control - - - - High Strategic Alliance Does not involve formation of separate legal entity Faster and easier to unwind Makes most sense in co-opetition industry structure Gives most strategic flexibility of above options
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Biased towards acquisition n 2-3 times as many acquisitions as JVs & Alliances n n Firms prefer control n Survey of 200 US Companies ¨ 82% viewed acquisitions, JV and alliances as “two different ways to achieve similar growth goals”, BUT ¨ Only 24% considered a JV or Alliance for their 4
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Role of alternative relationship at Cisco Joint Marketing/ Sales/ OEM Alliance/ JV Investment Acquire Strategic Value Commitment Cisco uses non-acquisition relationships as opportunity to learn about potential targets and position Cisco for an option at negotiated deal
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n Event Studies ¨ JV gain about 1.5% around announcement date generally shared
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This note was uploaded on 02/13/2012 for the course BUSI 599 taught by Professor Ravenscraft during the Fall '10 term at UNC.

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class 22 joint ventures 2011_BSBA - 1 BA599 Mergers &...

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