Joint venture and mergers and acquition

JOINT VENTURE/MERGERS AND AQUISITIONS

MEANING OF JOINT VENTURE

Joint venture is the co operation of two or more

individuals or business in which each agrees to share profit, loss and control in a specific

enterprise.

FEATURES OF JOINT VENTURE

• Joint venture is a short duration special purpose partnership.

• Joint venture does not follow the accounting concept 'going concern'.

• The members of joint venture are known as co-ventures.• Joint venture is a temporary business activity.• In joint venture, profits and losses are shared in agreed

proportion. If there is no agreement regarding the distribution of profit, they will share profit equally.

• Joint venture is an agreement for polling of capital and business abilities to be employed in some profitable venture.

INTERNAL FACTORS TO STYLE A JV

• Spreading prices

You and JV partners can share prices associated with advertising, product or service improvement, and other expenditures, reducing your monetary burden.

•Opening Accessibility to Fiscal Assets:

With each other you plus a JV accomplice may have greater credit or far more assets to obtain bigger resources for loans and grants than you could obtain on your own.

• Connection to Technological Assets:

You could possibly want entry to technological assets you couldnt afford personally, or vice versa. Sharing progressive and proprietary engineering can increase items, as well as your individual understanding of technological processes.

• Improving Obtain to New Markets:

You and your JV partners can combine client and contacts with each other or even create a jointproducts or services that accesses new markets.

EXTERNAL FACTORS TO STYLE A JV

•  Develop Stronger Innovative Solution:

With each other you and also a JV companion may be able to share suggestions to produce a product thats a lot more competitive within your industry.

• Increase Speed to Market place:

With shared entry to economic, technological, and distribution means, you along with a JV accomplicecan get your joint item into the market place quicker and a lot more efficient.

ADVANTAGES• Accessing additional financial resources: • Sharing the economic risk with co-venturer • Widening economic scope fast • Tapping newer methods, technology, and approach you

do not have • Building relationship with vital contacts

DISADVANTAGES• Shared profit – Since you share assets, you also share

the profit. • Diminished control over some important matters -

Operational control and decision making are sometimes compromised in joint ventures.

• Undesired outcome of the quality of the product or project.• Uncontrolled or unmonitored increase in the operating

cost

MERGERS Mergers happen when two companies agree to legally combine into one company, melding their management.

AQUISITIONS• Mergers and acquisitions are often confused. An

acquisition involves one company buying a controlling interest in the stock of another company and managing both companies under one management team, which might consist of a mix of managers from both companies or only the managers from the surviving company.

MERGER ACQUISITION

COMPANY A COMPANY A COMPANY BCOMPANY B

Company A and Company B together form the new Company

C

Company A buys Company B Company A

TYPES OF MERGERS

• Horizontal mergers: It takes place when the two organizations producing a similar product combine. E.g.: GAP Inc. control three distinct companies, Banana Republic, Old Navy and the GAP itself.

• Vertical Mergers: It takes place when the two organizations working at different stages in the production of the same product, combine. E.g.: Carnegie Steel company, it control the mill, iron ore mines, coal mines, the ships, the rail roads, the coke ovens.

• Conglomerate Mergers: It takes place when two organizations operate in different industries. A conglomerate is a large company that consists of divisions of often seemingly unrelated business. E.g.: Tata group, Reliance Industries etc.

TYPES OF ACQUISITION• Friendly Acquisition: In this generally poorly performing

organization’s board od directors willingly sells its shares to the acquiring organization.

• Hostile acquisition: In this generally poorly performing organization’s board of directors opposes to sell of the company. In this situation the acquiring organization has two options:

1. A tender offer: It represents an offer to buy the stock of the target organization either directly from the shareholders or through secondary market.

2. Proxy fight: the acquirer solicits the shareholders of the target organization in an attempt to obtain the right to vote their shares. The acquiring organization hopes to secure enough proxies to gain control of the board of directors and in turn replace the incumbent management.

MOTIVES BEHIND M AND AS• To provide improved capacity utilization • To provide better use of the existing sales force • To reduce managerial staff • To gain economies of scale • To smooth out seasonal trends in sales • To gain access to new suppliers, distributors, customers,

products and creditors • To gain new technology • To reduce tax obligations

REASONS FOR FAILURE OF MERGERS

• Undue focus on financial aspects– valuing assets, determining the price and due diligence at the cost of human factor.

• Line employees and managers at all level lose personal effectiveness as a result of rumors, misinformation and worry.

• Infrequent and irrelevant communication adds to the problem. • Without clear lines of authority and a clear understanding of

where they fit in, employees and managers are often caught in a web of conflicting objectives and old loyalties.

• The post merger entity demands a leadership to articulate a vision and inspire others to join in that vision. But the stress and uncertainties associate with the merger make the leader focus inwards and play safe.

DIFFERENCES

MERGER:• Merging of two organization into

one.• It is the mutual decision.• Merger is expensive than hostile

takeover. • Through merger shareholders

than merger. can increase their net worth.

•  It is time consuming and the company has to maintain so much legal issues.

• Dilution of ownership occurs in merger

ACQUISITIONS: • Buying one organization by

another.• It can be friendly take over or a

hostile takeover.• Acquisition is less expensive

than merger.• Buyers cannot raise their

enough capital.• It is faster and easier

transaction.• The acquirer does not

experience the dilution of ownership

MERGERS AND ACQUISITION DEALS