Acquisition, Takeover, or Merger?

Although technically, the words "acquisition" and "takeover" mean almost the
same thing, they have different nuances on Wall Street. In general, "acquisition"
describes a primarily amicable transaction, where both firms cooperate;
"takeover" suggests that the target company resists or strongly opposes the
purchase; the term "merger" is used when the purchasing and target companies
mutually combine to form a completely new entity. However, because each
acquisition, takeover, and merger is a unique case, with its own peculiarities and
reasons for undertaking the transaction, use of these terms tends to overlap.

Acquisitions—mostly amiable
Friendly acquisitions occur when the target firm agrees to be acquired; its board
of directors (B of D, or board) approves of the acquisition. Friendly acquisitions
often work toward the mutual benefit of the acquiring and target companies.
Both companies develop strategies to ensure that the acquiring company
purchases the appropriate assets, and they review the financial statements and
other valuations for any obligations that may come with the assets. Once both
parties agree to the terms and meet any legal stipulations, the purchase
proceeds.

Takeovers—usually inhospitable; often hostile

Unfriendly acquisitions, commonly known as "hostile takeovers," occur when
the target company does not consent to the acquisition. Hostile acquisitions
don't have the same agreement from the target firm. So, the acquiring firm must
actively purchase large stakes of the target company to gain a controlling
interest, which forces the acquisition. Even if a takeover is not exactly hostile, it
implies that the firms are not equal in one or more significant ways.
Mergers—mutual; creates a new entity
As the mutual fusion of two companies into one new legal entity, a merger is a
more-than-friendly acquisition. Mergers generally occur between companies
that are roughly equal in terms of their basic characteristics—size, number of
customers, the scale of operations, and so on. The merging companies strongly
believe that their combined entity would be more valuable to all parties
(especially shareholders) than either one could be alone.

Acquisition is when one company (generally the larger one) buys another
company (generally the smaller one). Facebook acquired Whatsapp at a
whopping 22$billion.

Strategic Alliance is when companies decide to work together on certain pre-

defined areas of business for pre-defined time frames to achieve mutually
beneficial goals. Jetairways has a strategic alliance with Etihad.

Joint Venture is when 2 or more people/companies come together to accomplish

a project/venture. They may come together because of their individual skills or
resources which when combined could be winner. Tata & DoCoMO is a perfect
example.

Sony-Ericsson is a joint venture between Sony and the Swedish company

Ericsson. Ericsson is the Swedish manufacturing company of the
telecommunications equipment while Sony is a mobile phone manufacturing
company. Ericsson used to get chips from Philips, but in March, 2000, a fire
destroyed the production facility of Philips. Facing an acute shortage of chips,
Ericsson was prompted to form a joint venture with Sony. On February 16,
2012, Sony acquired Ericsson’s share in the venture and renamed the company
as Sony Mobile Communications
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

To quote IBM, its new partnership with Apple “brings together the analytics
and enterprise-scale computing of IBM with the elegant user experience of
iPhone and iPad to deliver a new level of value for businesses”

 Joint ventures and strategic alliances allow companies with complementary

skills to benefit from one another’s strengths. They are common in
technology, manufacturing and commercial real estate development, and
whenever a company wants to expand its sales or operations into a foreign
country. In a joint venture, the companies start and invest in a new
company that’s jointly owned by both of the parent companies. 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.

 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.
 Strategic Alliances
 When companies want to quickly gain a new area of expertise or access to
new technology or markets, they usually have two options: buy a smaller
company with those assets or form a strategic alliance with another
company that would benefit equally from the partnership. These
agreements often have a limited scope and function, such as trading access
to a strong brand for access to an emerging technology.

 Uses
 Both forms of partnership can be used to transfer technology, assets and
knowledge between complementary companies. Strategic alliances are
usually undertaken to allow each company to pursue a new market, product
or strategy that they can’t manage on their own. Joint ventures are often
used to shield the parent companies from the risk of a new venture failing;
if the new product flops, the joint venture can go bankrupt without harming
the parent company except to the extent of its investment. Some countries
require that all companies that do business within their borders be at least
partly owned by citizens of that country. In this case, a foreign company
can start a joint venture with a domestic company to comply with the law.

 In a strategic alliance, the two or more parties agree to terms and can “seal
the deal” with no more than a handshake. Or they may draft a letter of
understanding or letter of agreement to spell out the terms and set
expectations. A joint venture is formed by a binding contract.
 In a strategic alliance, the two or more companies remain separate entities.
In a joint venture, a new entity is formed.* A strategic alliance is not
considered a separate legal entity; a joint venture is.
 A strategic alliance is usually managed by representatives of both
companies. New management is usually found for a joint venture.
  A strategic alliance is often forged to maximize the benefits and
opportunities that both companies bring to the table. In a joint venture, the
emphasis is often on limiting risk.

BASIS FOR
JOINT VENTURE STRATEGIC ALLIANCE
COMPARISON

Meaning Joint Venture refers to a Strategic Alliance implies an

form of business agreement amidst two or more
organization, set up by two entities to work jointly with one
or more companies, to carry another, to increase performance
out financial activity. of both the entities.

Independent The entities which come The entities which come

Organization together in a joint venture, together in a strategic alliance,
do not continue to operate continue to operate as
as independent companies. independent companies.

Contract Exist May or may not exist

Form of Strategic Alliance Collaboration or corporate

partnering

Separate legal Yes No

entity

Objective Risk limitation Reward maximization

BASIS FOR
JOINT VENTURE STRATEGIC ALLIANCE
COMPARISON

Management Bilateral Delegated

1. When an independent entity is formed by two or more other entities, the

business venture is known as a joint venture. On the other extreme, a
strategic alliance is an arrangement between two or more companies from
various nations, work together to collaborate in any activities of value
chain system.

2. The entities which undergo to form the joint venture, do not operate as
independent entities. Conversely, the firms undergoing strategic alliance,
operate as independent entities.

3. The contractual agreement must exist in the case of joint venture whereas
the strategic alliance may be expressly declared or implied between the
concerned entities.

4. The joint venture is the most complicated type of strategic alliance. As

against, a strategic alliance is a form of collaboration or corporate
partnering.

5. The joint venture is a separate legal entity, created by the conjoining firms.
On the contrary, a strategic alliance is not a separate legal entity.

6. Joint Venture is aimed at reducing risk, while strategic alliance focuses on

reward maximisation.

7. When we talk about management, a joint venture has bilateral

management. In contrast, a delegated management can be found in a
strategic alliance.