The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions

CHAPTER 25

Joint Ventures and Strategic Alliances: Alternatives to M&As

TOMAS MANTECON

Assistant Professor of Finance, University of North Texas

JAMES A. CONOVER

Professor of Finance, University of North Texas

INTRODUCTION

When a firm decides to expand the boundaries of its operations, it frequently has a menu of different options. These alternatives can be classified by the degree of control of the new operating assets. A firm can acquire full ownership of the assets, share ownership with other firms in alliances or partial acquisitions, or enter into arm’s-length contracts with a third party. This chapter focuses on the choice between mergers and acquisitions (M&As) and alliances. An alliance is broadly defined as a contractual relationship in which several independent partners share tangible or intangible assets. Gomes-Casseres (1996, p. 34) defines an alliance as “any governance structure to manage an incomplete contract between separate parties in which partner has limited control.” The realm of alliances includes equity alliances managed in a joint venture (JV) by an independent board of directors, and nonequity alliances that expand a wide range of contractual collaborations including technology, research and development (R&D), manufacturing, materials supply or marketing, and licensing.

The economic relevance of M&As can be conjectured from observing the more than $38 trillion (in 2009 constant dollars) in acquisitions during the period 1990 to 2008, as compiled by the ...