Mergers, Acquisitions, and Corporate Restructurings, 7th Edition

CHAPTER FOURTEEN Joint Ventures and Strategic Alliances

AS WE HAVE SEEN, a merger with, or an acquisition of, another company can be a costly endeavor but may provide great gains for the companies pursuing the deal. It may also be the case, however, that many of the gains that the participants hoped to achieve could be realized without having to do a merger or an acquisition. It may be possible that these gains can be achieved with a joint venture or a strategic alliance. In this chapter we will explore these two options as alternatives to mergers and acquisitions (M&As). We will consider their respective benefits and costs and then compare these to M&As. We note that in certain instances, companies are better off with an alliance or joint venture; but in other cases such deals will not achieve a company's goals, and it will have to focus on M&As.

As with our discussions of M&As, we will review the shareholder wealth effects of both joint ventures and strategic alliances. Such studies of the market's initial reaction, like those of M&As, can provide great insight into whether a deal will ultimately be beneficial.

CONTRACTUAL AGREEMENTS

Even before discussing joint ventures and strategic alliances, we should first consider a simpler alternative to an alliance or joint venture—a basic contractual agreement between the parties. If the goals of the relationship are specific and can be readily set forth in an enforceable contract between the parties, then this may be the least ...