Joint venture

With individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers". Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson, Penske Truck Leasing, Norampac, and Owens-Corning. A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits. Since money is involved in a joint venture, 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. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary. Example:MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company, announced on October 9, 2007. The joint venture has the responsibility of selling brands such as Miller Lite,Miller High Life, Miller Genuine Draft, Coors, Coors Light, Molson Canadian, and Blue Moon (beer) in the United States, with the purpose of combining all of their US brewing operations to better compete against Anheuser-Busch InBev. The company is also tasked with brewing brands of beer and lager that are owned by Pabst Brewing Company.

Sony Ericsson
Sony Mobile Communications AB (formerly Sony Ericsson Mobile Communications AB) is a multinational mobile phone manufacturing company, and a wholly owned subsidiary of theJapanese electronics company Sony Corporation. It was founded on October 1, 2001 as a joint venture between Sony and the Swedish telecommunications equipment company Ericsson, under the [1] [4] name Sony Ericsson. Sony acquired Ericsson's share in the venture on February 16, 2012.

Origins
In the United States, Ericsson partnered with General Electric in the early nineties, primarily to establish a US presence and brand recognition. Ericsson had decided to obtain chips for its phones from a single source a Philips facility in New Mexico. In March 2000, a fire at the Philips factory contaminated the sterile facility. Philips assured Ericsson and Nokia (their other major customer) that production would be delayed for no more than a week. When it became clear that production would actually be compromised for months, Ericsson was faced with a [10] serious shortage. Nokia had already begun to obtain parts from alternative sources, but Ericsson's [11] position was much worse as production of current models and the launch of new ones was held up.

Ericsson, which had been in the mobile phone market for decades, and was the world's third largest cellular telephone handset maker, was struggling with huge losses. This was mainly due to this fire and its inability to produce cheaper phones like Nokia. To curtail the losses, it considered outsourcing [citation needed] production to Asian companies that could produce the handsets for lower costs. Speculation began about a possible sale by Ericsson of its mobile phone division, but the company's president said it had no plans to do so. "Mobile phones are really a core business for Ericsson. We [citation needed] wouldn't be as successful (in networks) if we didn't have phones", he said. Sony was a marginal player in the worldwide mobile phone market with a share of less than 1 percent in 2000. By August 2001, the two companies had finalised the terms of the merger announced in April. The company was to have an initial workforce of 3,500 employees. [edit]2001

to 2010

Logo of Sony Ericsson

Annual net income or loss 2003 to 2009

Following the creation of the joint venture, Ericsson's market share actually fell, and in August 2002, Ericsson announced that it would cease making mobile phones and end its partnership with Sony if the [citation needed] business continued to disappoint. However, in January 2003, both companies said they would inject more money into the joint venture in a bid to stem the losses. Sony Ericsson's strategy was to release new models capable of digital photography as well as other multimedia capabilities such as downloading and viewing video clips and personal information management capabilities. To this end, it released several new models which had built-in digital camera and colour screen which were novelties at that time. The joint venture, however, continued to make bigger losses in spite of booming sales. The target date for making a profit from its first year to

2002 was postponed to 2003 to second half of 2003. It failed in its mission of becoming the top seller of multimedia handsets and was in fifth-place and struggling in 2005.

Acquisition
An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquire or merging company (also termed a target) is or is not listed on a public stock market. An additional dimension or categorization consists of whether an acquisition is friendly or hostile. Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually [4] one with no business and limited assets.

Motives of merger and acquisition

The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial performance. The following motives are considered to improve financial performance: Economy of scale: This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. Economy of scope: This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products. Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices. Cross-selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products. Synergy: For example, managerial economies such as the increased opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts. Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company.

Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below). Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming information [7] asymmetry or by combining scarce resources. Vertical integration: Vertical integration occurs when an upstream and downstream firm merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalise an externality problem. A common example of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power and each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. Following a merger, the vertically integrated firm can collect one deadweight loss by setting the downstream firm's output to the competitive level. This increases profits and consumer surplus. A [8] merger that creates a vertically integrated firm can be profitable. Hiring: some companies use acquisitions as an alternative to the normal hiring process. This is especially common when the target is a small private company or is in the startup phase. In this case, the acquiring company simply hires the staff of the target private company, thereby acquiring its talent (if that is its main asset and appeal). The target private company simply dissolves and little [citation needed] legal issues are involved. Absorption of similar businesses under single management: similar portfolio invested by two different mutual funds namely united money market fund and united growth and income fund, caused the management to absorb united money market fund into united growth and income fund.

However, on average and across the most commonly studied variables, acquiring firms' financial [9] performance does not positively change as a function of their acquisition activity. Therefore, additional motives for merger and acquisition that may not add shareholder value include: Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger. (In his book One Up on Wall Street, Peter Lynch memorably termed this "diworseification".) Manager's hubris: manager's overconfidence about expected synergies from M&A which results in overpayment for the target company. Empire-building: Managers have larger companies to manage and hence more power. Manager's compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders).

Distinction between mergers and acquisitions

The terms merger and acquisition mean slightly different things. The legal concept of a merger (with the resulting corporate mechanics, statutory merger or statutory consolidation, which have nothing to do with

the resulting power grab as between the management of the target and the acquirer ) is different from the business point of view of a "merger", which can be achieved independently of the corporate mechanics through various means such as "triangular merger", statutory merger, acquisition, etc. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an "acquisition". From a legal point of view, in an acquisition, the target company still exists as an independent legal entity, which is controlled by the acquirer. In the pure sense of the term, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place. For example, in the 1999 merger of GlaxoWellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created.

[clarification needed]

Example of merger:In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time. A purchase deal will also be called a "merger" when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an "acquisition". Example of merger:GlaxoSmithKline plc (GSK) (LSE: GSK, NYSE: GSK) is a British multinational pharmaceutical, biologics, vaccines and consumer healthcare company headquartered in London, United Kingdom. It is the world's fourth-largest pharmaceutical company [3] measured by 2009 prescription drug sales (after Pfizer, Novartis, and Sanofi). It was established in 2000 by the merger ofGlaxoWellcomeplc (formed from the acquisition of Wellcomeplc by Glaxoplc) and SmithKline Beecham plc (formed from the merger of Beecham plc and SmithKline Beckman Corporation, which was formed by combining the Smith Kline French and Beckman companies).

GlaxoWellcome
In 1880, Burroughs Wellcome& Company was founded in London by the American pharmacists Henry Wellcome and Silas Burroughs.

SmithKline Beecham In 1843, Thomas Beecham launched his Beecham's Pills laxative in England giving birth to the Beecham Group.[10] Beecham opened its first factory in St Helens,

Lancashire, England for rapid production of medicines in 1859. The original factory was closed in 1994 and passed to the local college for re-development. By the 1960s, Beecham was extensively involved in pharmaceuticals.

Tata Corus acquisition :On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company, at 455 pence per share of Corus. The following months saw a lot of negotiations from both sides of the deal. Tata Steel's bid to acquire Corus Group was challenged by CSN, the Brazilian steel maker. Finally, on January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.
Corus Group was formed through the merger of KoninklijkeHoogovens and British Steel on 6 October 1999 and was a constituent of the FTSE 100 Index until it was acquired by Tata in 2007. Corus changed its name to Tata Steel Europe and adopted the Tata corporate identity in September 2010.

Synergies between the two companies

There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in fast developing region of the world and Corus which was a high value product manufacturer in the region of the world demanding value products. Some of the prominent synergies that could arise from the deal were as follows : Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer an in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence there would be a powerful combination of high quality developed and low cost high growth markets There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Tata steel's Continuous Improvement Program Aspirewith the core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus's Continuous Improvement Program The Corus Way with the core values : code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for our people.