Mergers and Acquisitions

INTRODUCTION

Joint ventures, strategic alliances, mergers and acquisitions become a necessity of the global economy and this is caused by the technological innovations, rapid geographical expansion, shortening product life cycles, increasing costs and risk. The executives of companies are led to seek for new ways to satisfy the increasing consumers' needs and companies' inability to supply a complete set of goods and services. Therefore these partnerships are often treated as companies' reaction to the environmental changes. (Varadarajan, Cunningham, 1995)

In this report we will take a glance at joint ventures, strategic alliances, mergers and acquisitions together with their forms, benefits and failures.

1. Joint Ventures

1.1. Forming a Joint Venture

A joint venture is an agreement by two or more parties to form a single entity to undertake a certain project. Each of the businesses has an equity stake in the individual business and share revenues, expenses and profits.

"Joint Ventures are agreements between parties or firms for a particular purpose or venture. Their formation may be very informal, such as a handshake and an agreement for two firms to share a booth at a trade show. Other arrangements can be extremely complex, such as the consortium of major U.S. electronics firms to develop new microchips," says Charles P. Lickson in A Legal Guide for Small Business. Joint ventures between small firms are very rare, primarily because of the required commitment and costs involved.

http://www.marketingminefield.co.uk/traditional-marketing/strategic-alliances/types.html

A joint venture is a legal partnership between two (or more) companies where in they both make a new (third) entity for competitive advantage. With a JV you will have something more than simple governance; you'll have a completely new entity with a board, officers, and an executive team. Effectively a JV is a completely new organization, but owned by the founding participants. The board of directors generally is constructed with representatives of the founding organizations. This new company will "do business" with the founding entities-usually as suppliers.

e.g. Uninor was a joint venture between Unitech (India) and Telenor (France) and KPIT Cummins is a joint venture between KPIT and Cummins Infosystems. In both the above cases, the resulting company is a new independent company with its own set of executives and even name.

http://www.mbaskool.com/business-articles/finance/94-mergers-vs-strategic-alliances-vs-joint-ventures-the-difference.html

An example from Turkey can be stated as ;

ISTANBUL (BUSINESS WIRE) - Energy Maintenance Services Group I, LLC (EMS) a leading provider of pipeline management services announced it has joined forces on a Joint Venture Agreement with Turkish based, VASTA? Company on 19 May 2009.

"EMS has strategically chosen Turkey as a pilot region," says EMS's Chief Executive Officer, Tim Nesler. He explained, "…Turkey is geographically a prime location for providing our joint venture services throughout the Middle East, Western Asia and Eastern Europe."

Vasta? CEO Nedim Ergin said, "Our partnership with EMS will enable the utilization of high technology in the petroleum and natural gas infrastructure throughout the Country." He continued, "Bringing specific integrity based services into the region and training our people on the importance of persevering and maintaining the Turkish infrastructure will be a huge step."

The signing took place on May 15 at the Vasta? offices in Istanbul, Turkey. Ayten Ergin, one of the Vasta? executives said, "The partnership of EMS and Vasta? will ensure the Joint Venture will become one of the largest producing and service based companies in the region."

The Joint Venture is in the process of finalizing details to establish a material and service supply network in the near future.

In accordance with the law no. 4646, it is stipulated that Bota? is divided into three legal entities and that the two legal entities other than the distribution activity are to remain privatized until 2011. Osman Yorganc?o?lu, the EMS and Vasta? representative in Turkey said, "…the traffic of Natural Gas flow through Turkey is increasing; and, the deficiencies our infrastructure are being eliminated with the volume of pipeline construction and gas transfer from surrounding countries to the European Union. Timing is perfect for this Joint Venture."

Joint ventures fall into several