UNIVERSITY OF CENTRAL PUNJAB, LAHORE
Human Resource Management
Title: Brief description of Merger, Acquisition, Joint venture Strategy, Retrenchment,
Disvestature, Liquidation Strategy
Group Members:
1. Saira Khalid
Reg. No. 0201
2. Sana Riaz
Reg. No. 0185
Section: M.Com 1A
Submitted to:
Sir Imran
Submission date:
4th- November-2013 (Monday)
Term to be defined:
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Joint Venture Strategy
Merger
Acquisition
Liquidation Strategy
Disvestature
Retrenchment
Joint Venture Strategy:
Definition:
A business agreement between two different companies to work together to achieve specific
goals.
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A strategic joint venture does not have to be permanent.
Companies maintain their independence and identities as individual companies.
Offset one or more weaknesses with another company's strengths.
OR
A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a
new entity and new assets by contributing equity.
Characteristics of Joint Venture Strategy:
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Shared contribution of equity
Shared authority
Shared control
Shared responsibility
Shared profits and losses
Shared assets
Reasons of forming a Joint Venture:
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Pursue larger opportunities than they could alone
Establish a presence in a foreign country
Gain a competitive advantage in a particular market.
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Help companies to lower costs
Gain access to another company's technology
Increase revenues,
Increase their customer base
Expand product distribution
Steps of formation of Joint Venture:
Following are the steps for the formation of a joint venture:
planning
partner
search
checking
feasibility
incorporation
1. Planning:
First of all the planning is made that either they should form this strategy or it will disturb
the workings of business. After making full research on every aspect, we will move further to
next steps.
2. Partner Search:
After planning, we will make search of a partner through which we form our joint
venture. That partner will be chosen who is willing and be helpful for our company or
corporation.
3. Check feasibility:
After that the partner who has been chosen must be given interpretation about his
financial position, policies and our company’s circumstances.
4. Incorporation:
If we are satisfied with company’s position and everything, then, incorporation with that
company will be formed.
Examples:
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Sony Ericsson
Hero Honda
Sony Ericsson:
Ericsson first formed the joint venture with General Electric and became a recognized brand for
cellular phones in early ninety’s. After that General Electric left and Ericsson began to obtain mobile
chips from Philips. But Philips caught fire in factory in New Mexico and Ericsson’s production was
disturbed. A mistake by Ericsson was that he waited for Philips for a year and suffered losses. Then
Ericsson’s position was disturbed. To curtail the losses, it considered outsourcing production to Asian
companies that could produce the handsets for lower costs. After that he formed a joint venture contract
with Sony which was a popular brand that times and 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
finalized the terms of the merger announced in April. . The stated reason for this venture is to combine
Sony's consumer electronics expertise with Ericsson's technological leadership in the communications
sector
Hero Honda:
Hero motors was manufacturing more than 16000 bikes per day. They sold 86 million bikes (approx.) in
2002. They served all the expansive markets in India. Hero wanted to serve mediocer’s market too.
Honda was working in the field of scooters and wanted to manufacture bikes to serve another market.
So, the reasons were: “To make bikes with low cost using kinetic energy”.
In April, 1984 Hero Cycles, India and Honda Motor Company, Japan inked a joint venture and the
world's single largest motorcycle company was born. Hero Honda Motors Limited (HHML) is the
World No. 1 two wheeler company and one of Honda Motor Company's most successful joint ventures,
globallyHero Honda has sold over 15 million motorcycles and has consistently shown a double digit
growth since its inception. Today, every second, a motorcycle sold in the country is a Hero Honda. Both
the companies, through this collaboration became India’s largest two-wheelers seller but by the end of
2010, this joint venture agreement ended due to certain reasons.
Merger
Definition:
The combining of two or more companies, generally by offering the stockholders of one
company securities in the acquiring company in exchange for the surrender of their stock.
Types of merger:
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Agreed Merger
Hostile Merger
Agreed merger:
When the merger occurs, by the formation of contract, between two companies. Or when the
companies themselves, with their own will form a contract that they will become one company or work
together as one company.
Hostile Merger:
When, one company seeks to control another without its agreement. This is called a hostile
takeover.
To avoid a hostile takeover the target company may seek a 'white knight', another company with which
it would prefer to merge.
Reasons for merger:
There are many motivations for mergers.
1. Expansion:
A larger, growing company may try to take over its smaller rivals in order to grow bigger.
2. Lack of capital:
In some cases it is the smaller company that wants to expand, but is hampered by lack of capital.
It seeks a larger partner who will put in the necessary investment.
3. Cost saving:
Other mergers seek to make cost-savings by integrating operations, sometimes on a world scale.
4. Defensive:
Some mergers are defensive, responding to other mergers which threaten the competitive
position of a company.
Types of merger:
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Horizontal merger
Vertical merger
Co-generic merger
Conglomerate merger
1. Horizontal Merger:
This kind of merger exists between two companies who compete in the same industry segment. The two
companies combine their operations and gains strength in terms of improved performance, increased
capital, and enhanced profits. This kind substantially reduces the number of competitors in the segment
and gives a higher edge over competition.
2. Vertical Merger:
Vertical merger is a kind in which two or more companies in the same industry but in different fields
combine together in business. In this form, the companies in merger decide to combine all the operations
and productions under one shelter. It is like encompassing all the requirements and products of a single
industry segment.
3. Co-Generic Merger:
Co-generic merger is a kind in which two or more companies in association are some way or the other
related to the production processes, business markets, or basic required technologies. It includes the
extension of the product line or acquiring components that are all the way required in the daily
operations. This kind offers great opportunities to businesses as it opens a hue gateway to diversify
around a common set of resources and strategic requirements.
4. Conglomerate Merger:
Conglomerate merger is a kind of venture in which two or more companies belonging to different
industrial sectors combine their operations. All the merged companies are no way related to their kind of
business and product line rather their operations overlap that of each other. This is just a unification of
businesses from different verticals under one flagship enterprise or firm.
Examples:
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Disney Pixar merger
Union bank and Standard Chartered bank
Disney Pixar Merger:
Pixar Animation Studios is an American computer animation film studio based in Emeryville,
California. The studio is best known for its CGI-animated feature films created with Photo Realistic
Render Man, its own implementation of the industry-standard Render Man image-rendering application
programming interface used to generate high-quality images. Pixar began in 1979 as the Graphics
Group, part of the computer division of Lucasfilm before its spin-out as a corporation in 1986 with
funding by Apple Inc. co-founder Steve Jobs, who became its majority shareholder. The Walt Disney
Company bought Pixar in 2006 at a valuation of $7.4 billion, a transaction which made Jobs Disney's
largest shareholder. The Walt Disney Company, commonly known as Disney, is an American
diversified multinational mass media corporation headquartered in Walt Disney Studios, Burbank,
California. It is the largest media conglomerate in the world in terms of revenue. Disney was founded on
October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio, and established itself
as a leader in the American animation industry before diversifying into live-action film production,
television, and travel.
Mickey and Nemo. Pinocchio and “Toy Story.” Cinderella and “Cars.” The merger of legendary
Walt Disney and everything-we-create-kids-adore Pixar was a match made in cartoon heaven. Disney
had released all of Pixar’s movies before, but with their contract about to run out after the release of
“Cars,” the merger made perfect sense. With the merger, the two companies could collaborate freely and
easily.
Union bank and Standard Chartered bank:
Standard chartered bank was a fast growing bank all over the world. It wanted expansion in Pakistan and
purchased Union bank of Pakistan considering it more strong organization. Another reason was that
union bank was fastly purchasing foreign banks and it had merged with bank of America and bank of
Emirates bank international.
In 2006, Standard Chartered Bank acquired 81% of Union Bank's shares for US$413 million. Under
Pakistani law, it had to delist Union Bank and make an offer for the outstanding shares; the offer raised
the total purchase price to about US$511. On 30 December 2006, Standard Chartered merged Union
Bank with its own subsidiary in Pakistan, which has 46 branches in 10 cities. The merged bank is named
Standard Chartered Bank (Pakistan) and is now Pakistan's sixth largest bank.
Acquisition:
Definition:
A corporate action in which a company buys most, if not all, of the target company's ownership
stakes in order to assume control of the target firm.
Acquisitions are often made as part of a company's growth strategy.
Types of Acquisition:
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Friendly Acquisition
Hostile acquisition
Friendly Acquisition:
A situation in which a target company's management and board of directors agree to a merger or
acquisition by another company. In a friendly takeover, a public offer of stock or cash is made by the
acquiring firm, and the board of the target firm will publicly approve the buyout terms, which may yet
be subject to shareholder or regulatory approval.
Hostile Acquisition:
The acquisition of one company (called the target company) by another (called the acquirer) that is
accomplished not by coming to an agreement with the target company's management, but by going
directly to the company's shareholders or fighting to replace management in order to get the acquisition
approved. A hostile takeover can be accomplished through either a tender offer or a proxy fight.
Reasons for Acquisition:
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Economy to scale
Cutting costs
Replacing leadership
Diversifying products or services
Gaining a competitive advantage or larger market share
Examples:
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Microsoft and Nokia
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Microsoft and Skype
Google and Motorola Mobile
Microsoft and Nokia:
Microsoft Corporation and Nokia Corporation announced that the Boards of Directors for both
companies have decided to enter into a transaction whereby Microsoft will purchase substantially all of
Nokia’s Devices & Services business, license Nokia’s patents, and license and use Nokia’s mapping
services.
Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of
Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total
transaction price of EUR 5.44 billion in cash. Microsoft will draw upon its overseas cash resources to
fund the transaction. The transaction is expected to close in the first quarter of 2014, subject to approval
by Nokia’s shareholders, regulatory approvals and other closing conditions.
Building on the partnership with Nokia announced in February 2011 and the increasing success of
Nokia’s Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile
devices through faster innovation, increased synergies, and unified branding and marketing. For Nokia,
this transaction is expected to be significantly accretive to earnings, strengthen its financial position, and
provide a solid basis for future investment in its continuing businesses.
Microsoft and Skype Acquisition:
Microsoft acquired skype in 2011 in the times, when skype itself accepted a bug in the software that
sends the instant messages between to persons to third party. Later, skype sent a new update to user
which hoped to prevent this problem. Skype was acquired by Microsoft as later was perfect in software
building. It helped skype (acquired) to build customer’s confidence again.
Google Acquired Motorola:
Google Inc. (NASDAQ: GOOG) announced today that the acquisition of Motorola Mobility Holdings,
Inc. (NYSE: MMI) has closed, with Google acquiring MMI for $40.00 per share in cash.
The acquisition will enable Google to supercharge the Android ecosystem and will enhance competition
in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain
open. Google will run Motorola Mobility as a separate business.
Acquisition happened on May 22, 2012.
Divestatature Strategy:
Definition:
Divestment strategy involves the sales or liquidation of portion of business, or a major division
OR
The partial or full disposal of an investment or an asset through sale or exchange, A company
will often divest an asset which is not performing well or which is not vital to the co’s core
business.
Reasons of Divestature:
Decisions to divest may be made for a number of reasons:
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Market share too small.
Availability of better alternatives.
Need for increased investment.
Lack of strategic fit.
 Legal pressures to divest.
Examples of Divestature:
1. Tata Oil Mill (TOMCO) was divested and sold to Hindustan Levers as soaps and a detergent
was not considered a core business for the Tata’s.
2. Harcourt General, the large US publisher, is selling its Neiman Marcus division
Retrenchment Strategy:
Definition:
A Retrenchment Strategy is followed when an organization aims at a contraction of its
activities through substantial reduction or the elimination of the scope of one or more of its
businesses in terms of their respective customer group, customer function or use of an
alternative technology.
Reasons of Retrenchment :
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New organization reforms
New dominated technologies
Adverse government policy
Changing customers needs and wants
Emergence of substitute products
Example of Retrenchment:
1. Nokia changes direction Nokia’s new CEO Stephen Elop issued his famous “burning
platform” email in Feb 2010 highlighting the need for significant strategic change at
Nokia Since then, there have been over 30,000 job losses at Nokia as the firm has
refocused its strategy on partnership with Microsoft.
2. Yell moves to digital Yell, the business directories business, has struggled as demand for
paper-based products has declined and it is left with a huge $3bn debt to finance. The
new strategy includes a rationalization of the business, further cost-cutting and heftier
investment in digital platform.
Liquidation Strategy:
Definition:
The winding-up of a company, a process during which assets are sold, liabilities settled as far as
possible, and any remaining cash returned to the members. Liquidation may be voluntary or
compulsory.
Example of Liquidation:
1. Alpic Finance a non banking finance corporation was ordered to be liquidated by Bombay
High Court when it defaulted on its outstanding payments to its investors.
2. El-Ameer Block factory sold all its assets and ceased business
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