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Syllabus
Unit I: Corporate Restructuring:
Meaning, need, different approaches and types of restructuring; Joint Ventures: Concept and
Meaning of Joint Ventures, Need and Types of Joint Ventures, Structures and Problems faced in
Joint Ventures, Joint Ventures and Strategic Alliance. Some relevant case study of successful and
failed joined ventures.
Unit II: Mergers and Acquisitions:
Introduction to mergers, types of mergers, theories of mergers and acquisitions; Cross-border
mergers and acquisitions, issues and challenges in cross border. M&A. Handling cross-culture and
taxations issues in cross-border M&A. Analysis of Post-Merger Performance. Fast track merger.
Merger strategy - growth, synergy, operating synergy, financial synergy, diversification. Demerger,
types of demerger, reverse merger, buyback of shares, leverage buy-out strategy. Takeover and its
types, takeover strategy, takeover bids, legal framework for mergers and acquisitions, leverages
and buyouts; Hostile tender offers and various anti-takeover strategies, criteria for negotiating
friendly takeover.
Unit III: Deal Valuation and Evaluation:
Factors affecting valuation basics, methods of valuation, cash flow approaches, economic value
added (EVA), sensitivity analysis, Valuation for slump sale, valuation of synergy, cost-benefit
analysis and swap ratio determination.
Unit IV: Post-Merger Evaluation:
Financial Evaluation of Mergers and Acquisitions, Impact on shareholders’ Wealth, Methods of
payment and financing options in mergers and acquisitions, Competition law 2002, SEBI (Securities
and Exchange Board of India) Takeover Code 2011.
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Books and References
Text Books
 Weston, Fred; Chung, Kwang S. & Siu, Jon A.; Takeovers,
Restructuring and Corporate Governance, (2nd ed.). Pearson
Education
 Gupta, Manju (2010); Contemporary Issues in Mergers and
Acquisitions. Himalaya Publishing
Readings:
 Sundarsanam (2006); Creating Value from Mergers and
Acquisitions, (1st ed.) Pearson Education
 Ramanujan. S. (1999); Mergers: The New Dimensions for Corporate
Restructuring, McGraw Hill
 Narayankar, Ravi, (2013); Merger and Acquisitions Corporate
Restructuring, Strategy and Practices, (2nd ed.). International Book
House Pvt. Ltd.
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Books and References
Other Books
 Godbole G Prasad,; Mergers, Acquisitions and Corporate
Restructuring, (2nd ed.). Vikas Publications.
 Thakur M. Jayant; Law and Practice of Mergers and Acquisitions.
 Ramanujam S.; Mergers et al Issues, Implications and case Law in
Corporate Restructuring.
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Unit 1: Joint Venture
 Meaning of Corporate Restructuring
 Need
 Approaches and types of restructuring
 Concept and Meaning of Joint Ventures
 Need and Types of Joint Ventures
 Structures of Joint Ventures
 Problems faced in Joint Ventures
 Joint Ventures and Strategic Alliance
 Some relevant case study of successful and failed joined
ventures.
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Corporate Restructuring
New Structure / Rebuild / Rearrange
Business Strategy
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Corporate Restructuring
Restructuring as per Oxford dictionary means
“to give a new structure to, rebuild or rearrange".
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Corporate Restructuring …..an Example
ABC Limited has surplus funds but it is not able to consider
any viable projects.
Whereas XYZ Limited has identified viable projects but has
no money to fund the cost of the project.
The merger of ABC Limited and XYZ Limited is a mutually
beneficial option and would result in positive synergies of
both the Companies.
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Corporate Restructuring
As per Collins English dictionary, meaning of corporate
restructuring is a change in the business strategy of an
organization resulting in diversification, closing parts of the
business, etc., to increase its long-term profitability.
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Corporate Restructuring
 Corporate restructuring is the process of significantly
changing a company's business model, management
team or financial structure to address challenges and
increase shareholder value.
 Corporate restructuring is an inorganic growth strategy.
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Corporate Restructuring
Being a human is a matter of Birth
Being a gentle human is a matter of choice
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Types of Growth
 Organic:
Growth through Internal strategies
No changes in corporate entity of the company
Eg. Capital restructuring
 Inorganic:
Growth through external strategies
May create a change in corporate entity of the
company
Eg. M&A, Takeover, Acquisition etc.
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Corporate Restructuring
 Any change in the business capacity or portfolio that is
carried out by an inorganic route or
 Any change in the capital structure of a company that is
not in the ordinary course of its business or
 Any change in the ownership of a company or control
over its management, or a combination of any two or all
of the above.
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Changes not defined as Corporate
Restructuring
 Initial creation of a corporate structure
 Change in the internal command structure or hierarchy
 Change in the business processes
 Downsizing
 Outsourcing
 Enterprise resource planning
 Total quality management
 Licensing
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Corporate Restructuring Objectives
 To obtain core competency
 To achieve economies of scale
 Risk reduction
 To obtain operational synergy
 To obtain efficient allocation of managerial capabilities
 To better deploy surplus cash from one business to
finance profitable growth in another
 To eliminate disadvantage and to combine advantages
 To enhance competitive advantages
 Orderly redirection of the firm's activities
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Types of Restructuring
 Financial
 Market
 Organisational
 Technological
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Types of Restructuring - Financial Restructuring
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 Financial restructuring deals with restructuring of capital
base and raising finance for new projects. Financial
restructuring helps a firm to revive from the situation of
financial distress without going into liquidation.
 Financial restructuring is done for various business
reasons:
Poor financial performance
External competition
Erosion or loss of market share
Emerging market opportunities
 It involves Equity Restructuring like buy-back,
Alteration/Reduction of capital and Debt Restructuring
like restructuring of the secured long-term borrowing,
long-term unsecured borrowings, Short term borrowing.
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Types of Restructuring – Market Restructuring
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 Market Restructuring involves decisions with respect to
the product market segments where the company plans
to operate on its core competencies.
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Types of Restructuring – Technological Restructuring
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 Technological restructuring occurs when a new
technology is developed that changes the way an
industry operates. This type of restructuring usually
affects employees, and tends to lead to new training
initiatives, along with some layoffs as the company
improves efficiency. This type of restructuring also
involves alliances with third parties that have technical
knowledge or resources.
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Types of Restructuring – Organisational Restructuring
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 Organizational Restructuring involves establishing
internal structures and procedures for improving the
capability of the personnel in the organization to respond
to changes. These changes need to have the
cooperation of all levels of employees. Some companies
shift organizational structure to expand and create new
departments to serve growing markets. Other companies
reorganize corporate structure to downsize or eliminate
departments to conserve overheads.
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Joint
Venture
Types
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Merger
Merger is the combination of two or more companies which
can be merged together either by way of amalgamation or
absorption or by formation of a new company. The
combining of two or more companies, is generally by
offering the stockholders of one company securities in the
acquiring company in exchange for the surrender of their
stock.
 Merging company
 Merged company
 Eg. Vodafone Idea
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Joint
Venture
Types
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Consolidation
Hindustan Computers Ltd.,
Hindustan Instruments Ltd.,
Indian Software Company Ltd. and
Indian Reprographics Ltd.
Hindustan Computers Limited
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Disinvest
ment
Slump
Sale
Reverse
Merger
Demerger
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Amalgamation
 Amalgamating company
 Amalgamated company
 Transferor company
 Transferee company
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Joint
Venture
Types
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Takeover / Acquisition
It is also known as acquisition.
Takeover occurs when an acquirer takes over the control of
the target company. Normally this type of acquisition is
undertaken to achieve market supremacy. It may be friendly
or hostile takeover.
 Target company
 Acquiring company
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Takeover / Acquisition Contd.
 Acquire substantial percentage of voting capital
 Acquire voting rights through proxy voting
 Acquire control over holding company
 Acquire management control through formal or informal
understanding or agreement with person controlling the
target company
 Eg.: Tata Motors acquired Jaguar Land Rover
 Eg.: Flipkart acquired eBay India
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Holding and Subsidiary company
 A, B, C, D
 A is holding co of Bco - shares
 A will become holding of B, C D
 B is subsidiary co. of A
 B is holding of C co
 C is subsidiary co. of B
 C is holding of D co
 D is subsidiary co. of C
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Disinvest
ment
Slump
Sale
Reverse
Merger
Demerger
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Slump Sale
Transfer of one or more undertaking as a result of the sale
for a lump sum consideration without values being assigned
to the individual assets and liabilities in such sales. If a
company sells or disposes of the whole or substantially the
whole of its undertaking for a predetermined lump sum
consideration, then it results in a slump sale.
Eg.: Slump sale of formulations business by Piramal Health
Care Ltd. to Abbott Healthcare Private Limited.
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Demerger
Entity's business operations are segregated into one or
more components. A demerger is often done to help each of
the segments operate more smoothly, as they can focus on
a more specific task after demerger.
 Demerged company
 Resulting company
 Eg.: Larsen and Toubro Ltd. Cement division to UltraTech
CemCo Ltd. (UCL).
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Disinvestment
Slump
Sale
Reverse
Merger
Demerger
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Reverse Merger
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 A is company
 B is a company
A
B
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Reverse Merger
 Private companies acquiring public company.
 A weaker or smaller company acquires a bigger company
 A parent company merges into its subsidiary
 A loss-making company acquires a profit-making
company.
Eg.: Godrej Soaps with Godrej Innovative Chemicals. Loss
Eg.: Indiabulls Financial Services Ltd. into its wholly-owned
subsidiary, Indiabulls Housing Finance Ltd.
Eg.: Merging of ICICI Ltd. with its arm ICICI Bank – size
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Disinvestment
Disinvestment means the action of an organization or
government selling or liquidating an asset or subsidiary. It is
also known as "divestiture".
Eg.: Indian Petrochemicals Corporation Limited to Reliance
Industries
Eg.: Maruti Udyog Ltd.
Eg.: Nestle selling its businesses like BabyRuth,
Butterfinger and Crunch to Ferrero.
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Joint Venture
A joint venture is a business or contractual arrangement
between two or more parties which agree to pool resources
for the purpose of accomplishing a specific task may be a
new project or any other business activity.
 Eg.: Maruti Suzuki
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Franchise
Franchising may be defined as an arrangement where one
party (franchiser) grants another party (franchisee) the right
to use trade name as well as certain business systems and
process, to produce and market goods or services
according to certain specifications.
The franchisee usually pays a one-time franchisee fee plus
a percentage of sales revenue as royalty and gains.
Eg.: Mc Donalds, Barista, Dunkin Donuts.
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Strategic Alliance
A strategic alliance is an arrangement between two
companies that have decided to share resources to
undertake a specific, mutually beneficial project. It is an
excellent vehicle for two companies to work together
profitably. It can help companies develop and exploit the
unique strengths. Organizations get an opportunity to widen
customer base or utilize the surplus capacity.
Eg.: Mobile Commerce Solutions Ltd. (MCSL)
Eg.: ICICI Bank and Vodafone India – mobile money
transfer and payment service – m-pesa
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Important aspects to be considered while planning or
46 implementing corporate restructuring strategies
The restructuring process requires various aspects to be
considered before, during and after the restructuring. They
are:
 Valuation & Funding
 Legal and procedural issues
 Taxation and Stamp duty aspects
 Accounting aspects
 Competition aspects
 Human and Cultural synergies
Based on the analysis of various aspects, a right type of
strategy is chosen.
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Types of Corporate Restructuring
Merger
Strategic
Alliance
Consolidation
Franchise
Amalgamation
Types
Joint
Venture
Takeover
Slump
Sale
Disinvestment
Reverse
Merger
Demerger
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Examples
 Vistara airlines is an Indian Joint Venture with a foreign
company. Vistara is the brand name of Tata SIA Airlines
Ltd., a JV between India’s corporate giant Tata Sons and
Singapore Airlines (SIA).
 Tata Starbucks Pvt. Ltd is a joint venture of Tata with
Starbucks Corporation, USA which runs a chain of
Starbucks brand coffee shops across India.
 Tata AIG Insurance
 Kotak Mahindra
 Maruti Suzuki
 Hero Honda
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Joint Venture
A joint venture (JV) is a business or contractual
arrangement between two or more parties which agree to
pool resources for the purpose of accomplishing a specific
task may be a new project or any other business activity.
In a joint venture (JV), each of the participants is
responsible for profits, losses and costs associated with it.
Company enters into a joint venture when it lacks required
knowledge, human capital, technology or access to a
specific market that is necessary to be successful in
pursuing the project on its own.
The joint venture can be organised as a partnership,
corporation, any other form of business organisation.
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Characteristics of Joint Venture
 Contribution by partners of money, property, effort,
knowledge, skill, or other asset to a common
undertaking.
 Joint property interest in the subject matter of the
venture.
 Right of mutual control or management of the enterprise.
 Expectation of profit, or presence of adventure
 Right to share in the profit.
 Usually limit the objective to a single undertaking or adhoc enterprise.
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Types of Joint Venture
JV may be Project based joint venture or Functional based
joint venture.
 Project based Joint venture: The joint venture entered
into by the companies in order to achieve a specific task
is known as project based JV.
 Functional based Joint venture: The joint venture
entered into by the companies in order to achieve mutual
benefit is known as functional based JV.
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Types of Joint Venture
The two options available for establishing a joint venture in
India are:
 Equity-based joint venture
Joint Venture
 Non equity joint venture
Company
Equity Based
Non Equity
LLP
Cooperative
Agreements /
Strategic
Alliances
Partnership
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Types of Joint Venture –
Equity Based Joint Venture
 Two or more parties set-up a separate legal company to
act as the vehicle for carrying out the project.
 This new company would usually be located in the same
country as one of the two partner companies, with the
purpose of mutually establishing an activity with its own
objectives: marketing and distribution, research,
manufacturing, etc.
 The form of business entity may vary – company,
partnership firm, trusts, LLPs, venture capital funds etc.
From the point of a foreign company, the most preferable
form of business entity is either a company or a limited
liability partnership firm.
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Characteristics of Equity Based Joint Venture
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The key characteristics of equity-based joint ventures are
as following:
a) There is an agreement to either create a new entity or
for one of the parties to join into ownership of an existing
entity
b) Shared ownership by the parties involved
c) Shared management of the jointly owned entity
d) Shared responsibilities regarding capital investment and
other financing arrangements.
e) Shared profits and losses according to the Agreement.
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Types of Joint Venture –
Non Equity Joint Venture
 Also known as cooperative agreements.
 Technical service arrangements, franchise, brand use
agreements, management contracts, rental agreements, or
one-time contracts, e.g., for construction projects, non-equity
arrangements in which some companies are in need of
technical services or technological expertise than capital. It
may be modernizing operations or starting new production
operations.
In a contractual / non equity joint venture, a new joint agreement
to work together is made but there is no agreement to give birth
to an entity owned by the parties who are working together. The
two parties do not share ownership of the business entity but
each of the two parties exercises some elements of control in the
joint venture.
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Characteristics of Non Equity Joint Venture
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a) Two or more parties have a common intention – of running a
business venture
b) Each party brings some inputs
c) Both parties exercise some controls on the business venture
d) The relationship is not a transaction to transaction
relationship but has a character of relatively longer duration.
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Structure / Forms of Equity Based JV
 Company
 Partnership Firm
 Limited Liability Partnership Firm
 Venture Capital Fund
 Trusts
 Investment Vehicle
 Other Entities
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Structure / Forms of Equity Based JV
 Company
 Partnership Firm
 Limited Liability Partnership Firm
 Venture Capital Fund: A duly registered Foreign
Venture Capital Investor is allowed to contribute up to
100% in Indian Venture Capital Undertakings / Venture
Capital Funds / other companies.
 Trusts
 Investment Vehicle
 Other Entities
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Structure / Forms of Equity Based JV
 Company
 Partnership Firm
 Limited Liability Partnership Firm
 Venture Capital Fund
 Trusts: A foreign company is not allowed to use Trust as
a form of a joint venture entity in India.
 Investment Vehicle
 Other Entities
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Structure / Forms of Equity Based JV
 Company
 Partnership Firm
 Limited Liability Partnership Firm
 Venture Capital Fund
 Trusts
 Investment Vehicle: SEBI has introduced regulations for
some funds like Real Estate Investments Trusts,
Infrastructure Investment Funds, Alternative Investment
Funds. Such funds are now permitted to receive foreign
investment from a person resident outside India.
 Other Entities
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Structure / Forms of Equity Based JV
 Company
 Partnership Firm
 Limited Liability Partnership Firm
 Venture Capital Fund
 Trusts
 Investment Vehicle
 Other Entities: Foreign companies are not allowed to
use any structures other than those mentioned above for
the purpose of equity based joint venture entities.
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Who Can Set Up Equity Based JV In India
62
Any resident or non-resident entity can set up an equity
based joint venture in India. However, some entities face
restrictions under FDI Policy of Government of India. The
restrictions are as follows:
1. Citizen or entity of Pakistan can invest only after
approval of Government of India. They cannot invest in
defense, space, atomic energy and sectors prohibited
for foreign investment.
2. Citizen or entity of Bangladesh can invest only after
approval of Government of India. However, there are no
barred areas as in the case of entities from Pakistan.
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Who Can Set Up Equity Based JV In India
63
3. NRI residents in Nepal and Bhutan as well as citizens of
Nepal and Bhutan can invest on repatriation basis subject to
investment coming in free is in form of foreign exchange
(USD or EURO) through normal banking channels.
4. A Foreign Institutional Investor (FII) can invest only under the
Portfolio Investment Scheme which limits the individual
holding of an FII to 10% of the capital of the company and the
aggregate limit for FII investment to 24% of the capital of the
company. This aggregate limit of 24% can be increased to the
sectoral cap / statutory ceiling, as applicable, by the Indian
Company concerned through a resolution by its Board of
Directors followed by a special resolution to that effect by its
General Body and subject to prior intimation to Reserve Bank
of India. The aggregate FII investment, in the FDI and
Portfolio Investment Scheme, should be within the above
caps.
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Who Can Set Up Equity Based JV In India
64
5. A Foreign Venture Capital Investor (FVCI) duly
registered in India may contribute up to 100% of the
capital of an Indian Company under the automatic route
and may also set up a domestic asset management
company to manage the fund.
Such investments are subject to the relevant regulations
and FDI policy including sectoral caps, etc. SEBI
registered FVCIs are also allowed to invest under the
FDI Scheme, as non-resident entities, in other
companies, subject to FDI Policy and other regulations.
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Prohibited Sectors for Equity-based JV
Foreign companies are not permitted to establish joint
ventures in the following areas:
 Lottery Business
 Gambling and Betting
 Chit Funds
 Nidhi Company
 Trading in Transferable Development Rights
 Real Estate business or construction of farm houses
 Manufacture of tobacco products and substitutes
 Activities / sectors not open to private sector investment
e.g. Atomic Energy and Railway Operations (excluding
permitted areas of Railway Infrastructure)
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Approvals Required
 Automatic Approval Route Sectors: banker of Indian
company receiving investment receives an application
addressed to Reserve Bank of India (RBI). The approval
of RBI is deemed to be granted from the date of receipt
of the application by the banker.
 Government Approval Route Sectors: approval for
investing in an Indian company has to be obtained from
Government of India. Presently, the process of granting
approval is handled by the respective administrative
ministry. Like for Mines – Ministry of Mines, for Civil
Aviation – Ministry of Civil Aviation, for broadcasting –
Ministry of Information and Broad Casting.
Earlier, Foreign Investment Promotion Board (FIPB) used
to handle government approvals. On 24th May 2017,
Government of India abolished FIPB.
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Approval for Technology Transfer, Brand Name
67
Use, Royalty Payment etc.
 Agreements for Technology Transfer, Use of Brand Name,
Royalty Payment etc. are accorded approval by automatic
route. In other words, such agreements do not need any prior
permission from either the government or the Reserve Bank of
India.
 Before 2009, Government of India regulations used to limit the
royalty that could be paid to a foreign collaborator / brand
owner. The restrictions were removed vide Press Note No. 8
(2009) dated 16th December 2009.
 From 2009 to 2010, royalty and fees under technology
collaboration agreements were regulated by Foreign
Exchange Management (Current Account Transaction) Rules,
2000. However, the restrictions were removed by Foreign
Exchange Management (Current Account Transactions)
(Amendment) Rules, 2010 vide Notification No. GSR382(E)
dated 05.05.2010 w.e.f. 16.12.2010.
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100% investment allowed
Sectors in which 100% of Indian company is allowed to be
held by foreign company are as follows:
 Floriculture, Horticulture, Apiculture, and Cultivation of
Vegetables & Mushrooms under controlled conditions;
(LLP route allowed)
 Animal Husbandry (including breeding of dogs),
Pisciculture, Aquaculture, under controlled conditions
(LLP route allowed)
 Tea, coffee, rubber, cardamom, palm oil and olive oil
plantations (LLP Route allowed)
 Development and production of Seeds and planting
material. (LLP route allowed)
 Services related to agro and allied sectors (LLP route
allowed)
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Need / Rationale of Joint Ventures
There are many motivations that lead to the formation of a
JV. They include:
a) Risk Sharing
b) Economies of Scale
c) Market Access
d) Geographical Constraints
e) Funding Constraints
f) Acquisition Barriers Prelude to Acquisition
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Advantages of JV
 Increases resources and production capacity
 Access to new markets
 Access to latest technology
 Innovations
 Low cost of production
 Establish a brand name
 Create synergy
 Reduce risk
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Advantages of IJV
1. Faster and less costly access to foreign markets
2. Quick access to channels of distribution
3. Quick access to knowledge and know-how of the local
marketplace by the non-resident partner
4. Allow the partners to move quickly, cost effectively and
with credibility in the local marketplace.
5. Relationships with key suppliers and customers, and
proficiency in the local language and customs
6. Advantage of complementary lines of business and
synergies that may exist between the two companies.
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Disadvantages of Joint Venture
1. Frustrating experience and ultimately a failure if it lacks
adequate planning and strategy.
2. Factors such as marketplace developments, technology
issues, regulatory uncertainties and economic
downturns can be difficult to anticipate and can have
worse impact on IJVs.
3. Profits derived from an IJV are diluted because they are
shared.
4. Management issues can arise because of different
management philosophies of the partners.
5. May not flexible enough to change and accommodate
the evolving needs of the business.
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Disadvantages Of Joint Venture Contd.
6. Joint ventures are often difficult to capitalize as an entity,
particularly in respect to debt, because they are finite in
their duration and therefore lack permanence.
7. Unless an IJV is adequately capitalized, its debt
financing, if available at all, may have to be guaranteed,
in whole or in part, by the joint venture partners, which
can increase their level of risk in the venture.
8. Possibility of the creation of a competitor or a potential
competitor in the form of one’s own joint venture partner.
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Comparative study
74
Basis
Joint Venture
Company
Liability Limited
However, liability
under torts may
be unlimited as
faced by Union
Carbide in case
of Bhopal Gas
Tragedy
LLP Firm
Limited
Contractual
Joint
Venture
Limited by
Contract
Liability may be
unlimited in case Liability under
of wrongful Act / torts may be
omission by the unlimited.
partner.
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Basis
Difference
Joint Venture
LLP Firm
Company
Complexity For foreign promoters, time is taken mostly
In
for getting documents attested by Indian
Formation consulate and time taken in courier of the
said documents.
These are required for getting Digital
Signature and Director Identification
Number (DIN). Estimated time – 4 weeks.
Company formation
Easy incorporation
may take about 1
process. May take
month after the DIN’s about 1 week after
have been obtained the DPIN’s have
for all directors.
been obtained for
all partners.
Contractual
Joint Venture
Very low level
of statutory
regulation of
contractual
joint ventures.
Zero lead time
to start
activities.
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Difference
76
Basis
Joint Venture
Company
LLP Firm
Contractual
Joint
Venture
Cost of
More than
Between
Incorporation Rs.25,000.
Rs.10,000
Depends on
- Rs.20,000
authorized share
capital and the
state where
registered office is
located.
No
incorporation
cost.
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Difference
77
Basis
Minimum
Participants
(Partners /
Shareholders)
Joint Venture
Company
Two
shareholders.
May be local
residents or
foreign
residents.
LLP Firm
Two Partners
May be local
residents or
foreign
residents
Contractual
Joint
Venture
Entry of
participants
depends
upon the Joint
Venture
Agreement.
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Difference
78
Basis
Maximum
Participants
(Partners /
Shareholders)
Joint Venture
Company
Maximum 200
shareholders
for private
company.
No limit for
public
company.
LLP Firm
No maximum
limit on
number of
partners.
Contractual
Joint
Venture
Depends upon
the form of
organization
with whom
Joint Venture
Agreement
is made.
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Basis
Difference
Joint Venture
Company
Capital Capital
investment made
by the parties as
per the JV
Agreement.
Subject to
Sectoral caps
prescribed by
Government of
India
LLP Firm
Contractual
Joint
Venture
Investment by
partners as per the
LLP Agreement.
Investment is
allowed only in
sectors where
100% foreign
investment is
allowed under
automatic route
without conditions.
Depends on
terms of
contract.
There are no
constraints
prescribed by
Government of
India.
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Basis
Difference
Joint Venture
Company
Manage- As per the
ment
terms of the JV
Controls Agreement.
Statutory
protection of
rights of JV
partners.
LLP Firm
Partners jointly and
severally control the
activities. Rights
and duties
prescribed under
the LLP Agreement.
Contractual
Joint
Venture
As per the
Contract.
Limited
statutory
protection of
rights.
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Difference
81
Basis
Ownership
Joint
Venture
Company
Ownership
shared by
the parties.
LLP Firm
Ownership shared
by partners to the
extent of capital
contributed by each
of them.
Contractual
Joint
Venture
Ownership is
not shared.
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Difference
82
Basis
Joint Venture
Company
GovernSubject to Foreign
ment
Direct Investment
Approvals Policy of
Government of
India, approval
may either be
automatic or need
formal approval of
Government of
India
LLP Firm
Contractual
Joint
Venture
Investment
permitted only
Through
automatic route
in sectors where
100% foreign
investment
allowed under
automatic route
without
conditions.
Normally, no
approvals are
required.
Contractual
JV’s are not
permitted in
the fields of
gambling,
betting and
lottery.
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Difference
83
Basis
Joint Venture
Company
Exit
Three options –
Route either JV partner
may buy the other;
both partners may
sell their shares to
a third party; and
the company may
be wound up.
LLP Firm
Contractual
Joint
Venture
May be wound up by Subject to
the option of the
the terms of
parties and situations the contract.
mentioned in the LLP
Agreement.
Winding up a LLP
Firm is easy as
compared to a
company.
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Joint venture vs Partnership
Joint Venture
Partnership
Specific venture
Not limited to specific venture
Coventurers
Partners
Profit and loss at end of venture Profit and loss annually
No firm name
Must have firm name
No need for separate set of Separate set of books required
books
Minor cannot be a co venturer
Minor can be admitted to the
benefits of a partnership
Accounting on liquidation basis
Accounting on going concern
basis
May be governed by a MOU
Governed by Partnership Act
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Problems faced by JV
 Inability to gauge the market prospects
 Closure of Joint Venture
 Conflict of interest
 Competing against your JV partners on other projects
 Lack of joint venture experience
 Finding suitable and reliable partners
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Party to
Joint
Venture
IBM (U.S.)
and
Lenovo
Group
(China)
(2004)
Examples of Joint Venture
Percent Value in
ParticipaUS
tion
Dollar
18.9/81.1
$1.75
billion
Brief of the Venture
IBM sold its PC division to Chinabased Lenovo Group. Companies
entered into a joint venture that
would make Lenovo the third
largest PC maker in the world,
behind Dell and Hewlett Packard,
and give IBM an 18.9 percent stake
in Lenovo.
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Party to
Joint
Venture
Examples of Joint Venture
Percent Value in
ParticipaUS
tion
Dollar
Skype
49:51
Software
(Denmark)
and Tom
Online
(China)
(2005)
$1.75
billion
Brief of the Venture
Skype formed a joint venture with
Tom Online, China’s leading
wireless Internet provider. Joint
venture developed, customized and
distributed a simplified Chinese
version of the Skype’s Voice over
Internet Protocol software and
premium services to Internet users
and service providers in China.
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Examples of Joint Venture
Party to Joint Percent Value
Venture
Participa in US
-tion
Dollar
Areva SA
50:50
$11
(France) and
billion
Energy
Constellation
(U.S.) (2005)
Brief of the Venture
Areva SA, a multinational industrial
conglomerate that deals in energy,
and Constellation Energy, that
generated trades, supplied and
distributed energy formed a joint
venture, UniStar Nuclear, to sell next
generation nuclear plants in the U.S.
Areva will be the prime contractor
for the new plants, providing the first
load of nuclear fuel, while
Constellation will run the plants and
hold their operating licenses.
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Party to
Joint
Venture
Examples of Joint Venture
Percent
Participation
Pontiac Land 50:50
Group
(Singapore)
and West
Paces Hotel
Group (U.S.)
(2006)
Value
in US
Dollar
Brief of the Venture
Pontiac and West Paces formed a joint
venture known as the West Paces Hotel
Group Asia.. Headquartered in Singapore,
this hotel management company will
introduce new luxury hotels across Asia.
Pontiac Land will focus on business
development and securing strategic
partnerships in Asia with leading high networth families and institutions. West Paces
Hotel Group, headquartered in Atlanta,
Georgia (USA), will contribute management
and operations expertise in designing
properties
geared
toward
affluent
travelers.
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Party to
Joint
Venture
Siemens AG
(Germany)
and Nokia
Corp.(Finlan
d) (2006)
Examples of Joint Venture
Percent
Participation
50:50
Value
in US
Dollar
$19.9
billion
Brief of the Venture
Siemens AG and Nokia Corp. combined
their
fixed
and
mobile
network
infrastructure businesses in a joint venture
known as Nokia Siemens Networks. The JV
formation was a reaction to recent mergers
in the industry, such as Alcatel with Lucent,
and the rise of low-cost Chinese
competitors such as Huawei Technologies
Co Ltd and ZTE Corp. Nokia Siemens
Networks became the second largest
company, behind Ericsson, in wireless
networks and third in fixed-line, behind
Alcatel and Cisco Systems and is
headquartered in Finland.
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Party to
Joint
Venture
Examples of Joint Venture
Percent
Participation
Hit Company 50:50
(Rep. of
Slovenia) and
Harrah’s
Entertainment (U.S.)
(2007)
Value
in US
Dollar
Brief of the Venture
$700
million
Slovenian gaming company Hit and U.S.
casino operator Harrah’s Entertainment
formed a JV to build a major new gaming and
entertainment center in Slovenia, completed
in 2009 provided that the Slovenian
government loosens gaming legislation. The
project rests on the Slovenia government’s
willingness to tweak legislation: currently,
foreigners can hold no more than 20% in a
gaming venture, and the gaming tax is set at a
high 30%. Harrah’s was in talks with the
government on changes to the gaming law
that would allow foreigners to hold a 50%
stake. Harrah’s would also like the
government to lower the gaming tax.
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Party to
Joint
Venture
Examples of Joint Venture
Percent
Participation
Posco
35:30:35
(South
Korea),
SeAH
Corp.
(South
Korea) and
U.S. Steel
(U.S.)
(2007)
Value
in US
Dollar
Brief of the Venture
$93
millio
n
U.S. Steel partnered with Posco,
South Korea’s leading steel producer,
and SeAH, a tubular steel maker, in
the venture to be called United Spiral
Pipe LLC, to build a new U.S. facility
that will produce spira- welded pipe
for the natural gas industry.
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Strategic Alliance
Any arrangement or agreement under which two or more
firms cooperate in order to achieve certain commercial
objectives is referred to as strategic alliance. A true
strategic alliance is a written arrangement between two
companies that complement each other in a particular
identified area. it is a commitment by the two companies to
provide capabilities or cross servicing in certain identified
areas.
“A strategic alliance is a strategic cooperation between two
or more organizations, with the aim to achieve a result one
of the parties cannot (easily) achieve alone.”
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Joint Ventures and Strategic Alliance
Merriam-Webster Collegiate
defines alliances as:
Dictionary,
tenth
edition
“associations to further the common interests of the
members’ or inter corporate agreements covering a wide
gamut of functions ranging from component sourcing
through research and development to production and
marketing.”
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Joint Ventures and Strategic Alliance
According to Yoshino (1995) Strategic alliance has
three distinguishing characteristics:
 the two or more firms that unite to pursue a set of agreed
goals remain independent subsequent to the formation of
an alliance.
 the partner firms share the benefits of the alliance and
control over the performance of assigned tasks.
 the partner firms contribute on a continuing basis in one
or more key strategic areas e.g. technology, products
and so forth.
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Advantages of Strategic Alliance
There are many specific advantages of a global strategic
alliance.
 Instant market access, or entry into a new market.
 Exploit new opportunities to strengthen position in a
market where firm already has a foothold.
 Increase sales.
 Gain new skills and technology.
 Develop new products at a profit.
 Share fixed costs and resources.
 Enlarge distribution channels.
 Broaden business and political contact base.
 Gain greater knowledge of international customs and
culture.
 Enhance image in the world marketplace.
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Disadvantages of Strategic Alliance
There are also some inevitable disadvantage of strategic
alliances:
 Weaker management involvement.
 Fear of market insulation due to local partner’s presence.
 Less efficient communication.
 Poor resource allocation.
 Difficult to keep objectives on target over time.
 Loss of control over important issues such as product
quality, operating costs, employees, etc.
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Types of Strategic Alliances
On the basis of type of industry
i. Horizontal strategic alliance: Strategic alliance which is
characterized by the collaboration between two or more firms
in the same industry, e.g. the partnership between Sina Corp
and Yahoo in order to offer online auction services in China.
ii. Vertical strategic alliance: Strategic alliance which is
characterized by the collaboration between two or more firms
along the vertical chain of industry. e.g. Caterpillar’s
provision of manufacturing services to Land Rover.
iii. Intersectoral strategic alliance: Strategic alliance
characterized by the collaboration between two or more firms
neither in the same industry nor related through the vertical
chain, e.g. the cooperation of Toys “R” in US with
McDonald’s in Japan resulting in Toys “R” US stores with
built-in McDonald’s restaurants.
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Example of Multi-Company Strategic Alliance
99
A six-company strategic alliance was formed between
Apple, Sony, Motorola, Philips, AT&T and Matsushita to
form General Magic Corporation to develop Telescript
communications software.
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Stages of Alliance Formation
Strategy
Development
Partner
Assessment
Contract
Negotiation
Alliance
Operation
Alliance
Termination
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Stages of Alliance Formation
 Strategy Development: Strategy development involves
studying the alliance’s feasibility, objectives and
rationale, focusing on the major issues and challenges
and development of resource strategies for production,
technology, and people. It requires aligning alliance
objectives with the overall corporate strategy.
 Partner Assessment: Partner assessment involves
analyzing a potential partner’s strengths and
weaknesses, creating strategies for accommodating
partners’ management styles, preparing appropriate
partner selection criteria, understanding a partner’s
motives for joining the alliance and addressing resource
capability gaps that may exist for a partner.
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Stages of Alliance Formation
 Contract Negotiation: Contract negotiations involves
determining whether all parties have realistic objectives,
forming high calibre negotiating teams, defining each
partner’s contributions and rewards as well as protect
any proprietary information, addressing termination
clauses, penalties for poor performance, and highlighting
the degree to which arbitration procedures are clearly
stated and understood.
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Stages of Alliance Formation
 Alliance Operation: Alliance operations involves
addressing senior management’s commitment, finding
the calibre of resources devoted to the alliance, linking of
budgets and resources with strategic priorities,
measuring and rewarding alliance performance, and
assessing the performance and results of the alliance.
 Alliance Termination: Alliance termination involves
winding down the alliance, for instance when its
objectives have been met or cannot be met, or when a
partner adjusts priorities or re-allocates resources
elsewhere.
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Case Study
Air India & Lufthansa Strategic Alliance
Lufthansa and Air India significantly improved their market
leadership positions on India-Europe-USA routes with the
Strategic Alliance agreement signed between Lufthansa &
Air India. From 1st October 2004, Air India has been a
partner of Lufthansa. Within the scope of an extensive
agreement covering a far-reaching bilateral cooperation,
Wolfgang Mayrhuber, Chairman of the Executive Board of
Deutsche Lufthansa AG, and V. Thulasidas, Chairman &
Managing Director of Air India, signed a Strategic Alliance
agreement in Mumbai. The objective of the partnership was
expansion of the offer of flights between Germany and
India. All flights between the two countries were operated
by the two airlines in code-sharing. New routes were added.
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Case Study
Air India & Lufthansa Strategic Alliance
Through the cooperation in the area of frequent flyer
programs, customers on flights of both airlines can collect
and redeem miles for the respective programmes - Miles &
More and Flying Returns. Air India has been accorded the
IOSA10 (IATA Operational Safety Audit) Audit Certificate by
IATA11 (International Air Transport Association) which puts
it in the league of a dozen Airlines conforming to quality
standards required for joining Global Alliances.
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Case Study
Air India & Lufthansa Strategic Alliance
India - Germany/ Europe and India-USA are very important
markets for Air India which it plans to serve over Frankfurt.
IOSA (International Civil Aviation Organisation) – A
specialized agency of the United Nations whose objective is
to develop the principles and techniques of international air
navigation. IATA (International Air Transport Association) – A
trade association serving airlines, passengers, shippers,
travel agents alliance with Lufthansa. In addition to the
code-sharing between Germany and India, the code of Air
India will also be bookable on Lufthansa connecting flights
from Frankfurt to Berlin, Munich, Stuttgart and Düsseldorf to
Amsterdam, Geneva, Zurich and Lyon as well as to
Washington, Denver, Detroit, Chicago and Los Angeles.
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Case Study
Air India & Lufthansa Strategic Alliance
This cooperation agreement results from a memorandum of
understanding which the two carriers signed on 26th August
2003. In it, cooperation in the area of sales and marketing is
also foreseen as well as cooperation in the medium term in
other areas, for example, in the area of IT.
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Case Study
Air India & Lufthansa Strategic Alliance
Lufthansa which was flying from Frankfurt to Delhi (once
daily), Mumbai (once daily), Chennai (once daily) and
Bangalore (five times a week) as well as from Munich to
Delhi (three times a week.) would fly further six weekly
flights between Frankfurt and Mumbai as well as three
weekly flights between Frankfurt and Delhi which are
operated by Air India and can be booked with a Lufthansa
code. Air India served up to 33 destinations from Mumbai
and Delhi, including, among others, Frankfurt, Chicago and
New York.
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Case Study
Air India & Lufthansa Strategic Alliance
The fleet of Air India consists of 33 wide bodied aircraft and
it had planned to add more to make its Los Angeles &
Chicago flights daily. It has also planned to operate daily
services between London and Mumbai & London and Delhi
and link Bangalore with Frankfurt four times a week from
March 2005. The Lufthansa - Air India pact paves the way
for joint development of air services on India-Europe-USA
route.
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