Report

JOUNT VENTURES, ACQUISITION, SYNERGY, MERGERS

Submitted to:
Mam Tahira
Submitted by:
Group no 6
Group Members:
Shanza Maryam 7027
Wasfa Ishfaq 7065
Kashaf Khan 7083
Faiza Riaz 7041
Mehak Nawaz 7059
Subject:
Entrepreneurship
Programme:
BBA
Semester:
7th
Section:
A(Evening)

University of Education Multan Campus

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Joint Venture

When two or more business entities come together to achieve a common purpose, it’s
called a joint venture.

In a JV, the business entities share their resources, assets, equity to make the venture
successful. While getting into the JV, they also sign an agreement which binds them to
share the results of profit/loss, management etc.

In most cases, the JV is initiated to achieve a single purpose like research or production
of certain products.

Types of joint venture

1. Short term joint venture
2. Limited function joint venture

(1)Short term joint venture

The organization of a joint venture serves as a short-term partnership for the duration of
the project, in which each participant shares responsibility for the project’s associated
costs, profits, and losses. Although the parties share responsibility, the joint venture is its
own legal entity that remains separate from the parties’ other business interests

(2) Limited function joint venture

This is when you agree to collaborate with another business in a limited and specific way.
For example, a small business with an exciting new product might want to sell it through
a larger company's distribution network or want to go international. The two partners
agree a contract setting out the terms and conditions of how this would work.

Research and Development

In research and development joint ventures, firms pool their skills, knowledge or
equipment to develop better products, services or production methods. Each firm's area of
expertise may benefit the other, allowing the firms to develop these outputs more
efficiently.

Production and Marketing

Firms may either produce goods or services together, or market them together. In some
cases they do both. Combining their facilities, equipment and methods can allow firms to

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produce goods more efficiently. They may jointly produce a product they designed
together, or produce their own products using combined resources. If they jointly market
their products -- whether they produced the products together or not -- each firm can
reach the other's consumer base. By marketing together, they can also pool their
resources to advertise more widely.

Purchasing

An agreement to purchase goods together gives both firms more marketing power. They
typically purchase goods at a lower rate by purchasing them in larger amounts, which
they divide between each other. Firms can also reduce costs by storing goods together
and sharing the administrative staff who monitor the inventory.

Networking

In some industries, joint ventures between numerous firms create a network that better
serves customers. The telecommunications, banking and transportation industries are
examples of networking joint ventures. For example, banks use large networks to process
credit card transactions and allow customers access to their funds via ATMs.

Domestic and International

Any of the above joint ventures can take place between two firms within the same
country, or two firms from different countries. Firms from different countries often join
together to broaden their market bases.

Joint Venture agreement contain following Details

 Structure – whether the JV will be simply a short-term project or limited function

or full function joint venture.
 Objective – the purpose and goals of the JV
 Confidentiality – an agreement for the parties to protect any trade and commercial
secrets disclosed during the venture
 Financial Contributions – how much money each party will contribute to the
venture
 Assets and Employees – whether each party will contribute assets, and whether
they will assign employees to, or hire new employees for the venture
 Intellectual Property Ownership – which party will have ownership of any
intellectual property created by the venture

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  Management – specific responsibilities of each party, and the procedures to be
followed in operations of the venture
 Profits, Losses, and Liabilities – specifics of how any profits and losses are to be
distributed or shared among the parties, as well as the assignment of liabilities
 Disputes – specific instructions for the resolution of disputes that may arise
between the parties
 Exit Strategy – specific details on when and how the JV will end, including the
final distribution of assets and debts

Advantages of a Joint Venture

1 Expertise
Starting a joint venture provides the opportunity to gain expertise. The market is now
way easier for you to understand given the short-term partnership that you have forged.

2 Better resources
Forming a joint venture will give you access to better resources, such as specialized staff
and technology. All the equipment and capital that you needed for your project can now
be used.

3 It is only temporary
A joint venture is only a temporary arrangement between your company and another.

4 Both parties share the risks and costs

In case the joint-group project fails, you are not alone when bearing the costs of its
failure. Because you two had volunteered to share the expenses, you both will also
support the losses.

5 You are more likely to succeed

Your chances of success will become higher as you are already riding with a renowned
brand. As a result of this, your credibility will also vastly improve.

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6 Build relationships and networks
Even though your partnership is only for a specific goal, this move will enable you to
create long-lasting business relationships.

7 save money by sharing costs

Starting a joint venture is a great way to save money and/or split costs.
8 International joint venture offers opportunities
International joint ventures are very common nowadays. This is a great opportunity to
cooperate with people from different countries and combine our strengths.

Disadvantages of a Joint Venture

(1)No equal involvement

It often happens that while running the JV, the involvement of two or more companies
isn’t equal as a result, conflict arise between companies.

For example, Company A is working on the production process, whereas Company B is

responsible for the production, and Company C is in charge of planning and
implementing market strategies. Since Company A is not directly involved in the
production and promotion process, the pressure is on the latter companies. It will also
affect individual businesses.

(2) Cultures are completely different

Since two or more companies would come together in a single setting, a clash among
cultures can be predicted. As a result, the singular objective may get affected. People
with different beliefs, tastes, and preferences can get in the way big time if left
unchecked.

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(3) Lack of direct communications

In a JV, there can be chances of misunderstandings and miscommunication. Since two or

more companies come together for a single purpose, it’s difficult to maintain a direct
communication among the employees of the separate companies.

(4) Unreliable partners

Because of the separate nature of a joint venture, it is possible that the partners do not
devote 100% of their attention to the project and become unreliable.

(5) Unclear and unrealistic objectives

Unrealistic and unclear objectives may be set up. To avoid this, it is necessary that you
and your partners do a lot of research before starting your joint venture.

(6) A lot of research and planning are necessary

The success of a joint venture highly depends on thorough research and analysis of
the objectives.

(7) It may be hard for you to exit the joint venture as there is a contract
involved
Even though a joint venture is temporary, it may be hard for you to exit the joint venture
as there is a contract involvement.

Acquisition

An acquisition is a situation whereby one company purchases most or all of another

company's shares in order to take control. An acquisition occurs when a buying company
obtains more than 50% ownership in a target company. As part of the exchange, the
acquiring company often purchases the target company's stock and other assets, which
allows the acquiring company to make decisions regarding the newly acquired assets
without the approval of the target company’s shareholders.

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Acquisition Advantages and Disadvantages

A strategic acquisition can be one of the most important means of growth for your
business. The key to growth through acquisitions is to take advantages of the synergies
that a carefully and successfully orchestrated acquisition should yield.
Business owners often find that growth through acquisition is a faster, less expensive, and
a much less risky proposition than the traditional methods of growth realized through
expanded marketing and sales efforts. Unlike growth through increased market share and
sales, acquisition offers a host of other advantages, including easier financing for future
undertakings and immediate savings due to economies of scale.

Most businesses growing through acquisition will find a number of other competitive
advantages as well, ranging from catching the competition off guard to instant market
penetration. In some cases, competitors can be eliminated entirely via acquisition.

Here are some of the most important pros and cons you should weigh when considering
growth through acquisition for your business:

ADVANTAGES
1. Speed. Acquisition is one of the most time-efficient growth strategies. It offers the
opportunity to quickly acquire resources and core competencies not currently held by
your company. There is near-instantaneous entry into new product lines and markets,
usually with a recognized brand or positive reputation, and existing client base. In
addition, the risks and costs typically associated with new product development can drop
dramatically.
2. Market power. An acquisition will quickly build market presence for your company,
increasing market share while reducing the competition’s stronghold. Where competition
has been particularly challenging, growth through acquisition can reduce competitor
capacity and level the playing field. Market synergies are achieved.
3. New resources and competencies. Businesses may choose acquisition as a route for
gaining resources and competencies currently not held. These can have multiple
advantages, ranging from immediate increases in revenues to improving long term

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financial outlook to making it easier to raise capital for other growth strategies. Diversity
and expansion can also help a company to weather periods of economic or market slump.
4. Meeting stakeholder expectations. In some cases, stakeholders may have
expectations of growth through acquisition. While not all stakeholders will insist on
acquisition in particular as a growth strategy, under nearly all circumstances, stakeholders
are looking for returns on any investment or other advantages for non-investing
stakeholders. When there is pressure to perform and meet expectations for returns, an
acquisition can often yield results more quickly than other means for growth.
5. Financial gain. Acquiring organizations with low share value or low price earning
ratio can bring short-term gains due to assets stripping. Synergy between the surviving
and acquired organizations can mean substantial cost savings as well as more efficient
use of resources for soft financial gains.
6. Reduced entry barriers. Acquiring an existing entity can often overcome formerly
challenging market entry barriers while reducing risks of adverse competitive reactions.
Market entry can otherwise be a costly proposition, involving market research among
other upfront expenses, and take years to build a significant client base.

DISADVANTAGES
1. Financial fallout. Returns may not benefit stakeholders to the extent anticipated, and
the expected cost savings may never materialize or may take far too much time to
materialize due to a number of developing factors. These might include a higher-than-
anticipated price of acquisition, an unusually long timeframe for the acquisition process,
lost of key management personnel, lost of key customers, fewer synergies than projected
and other unforeseen circumstances.
2. Hefty costs. Under some circumstances, the cost of acquisition can climb steeply, well
beyond earlier projections. This is particularly true in situations of hostile takeover bids.
In some situations of runaway costs, the added value may not be enough to justify the
cost in dollars and resources that went into making the acquisition happen.
3. Integration issues. Integration of the acquired organization can bring a number of
challenges. Company cultural clash can erupt and activities of the old organizations may
not mesh as well as anticipated when forming the newly combined entity. Employees

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may resent the acquisition, and undercurrents of anxiety and anger may make integration
challenging.
4. Unrelated diversification. When an acquisition brings together diverse product or
service lines, there can be difficulties in managing resources and
competencies. Management of employees and departments can face extreme hurdles and
the time necessary to address such issues may deplete much of the value otherwise
brought about by the acquisition.
5. Poorly matched partner. Unless he or she has extensive firsthand experience in
implementing acquisition as a growth strategy, a business owner who does not seek
professional advice in identifying a potential company for acquisition may target a
business that brings too many challenges to the equation. A failed acquisition can rob an
otherwise healthy organization of
6. Distraction from operations. When the acquisition faces too many challenges or the
timeline for completion stretches out longer than anticipated, too much of the managerial
focus is diverted away from internal development and daily operations. The post-
acquisition organization can be harmed due to lack of managerial resources, resulting in
fewer synergies or at the least, delays in savings realized from synergies.

Synergy

A synergy is where the whole is greater than the sum of its parts. In other words, when
two or more people or organizations combine their efforts, they can accomplish more
together than they can separately. They can get more done working together than they
can working apart. In mathematical terms, a synergy is when 2 + 2 = 5.
Negative synergies also exist. If there is a negative synergy, the whole is less than the
sum of its parts. In other words, people can actually accomplish more by working alone
rather than working together. In mathematical terms, a negative synergy is when 2 + 2 =
3. An easy example is an overly social work team that spends too much time 'team
building' and not enough time working.

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Merger and Hostile Takeover
The terms merger and acquisition mean slightly different things, though they are often
used interchangeably.

When one company takes over another and clearly establishes itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target company
ceases to exist, the buyer absorbs the business and the buyer's stock continues to be
traded while the target company’s stock does not.

In the pure sense of the term, a merger happens when two firms, often of about the same
size, agree to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger of equals."
Both companies' stocks are surrendered and new company stock is issued in its place. For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,
and a new company, Daimler Chrysler, was created.

Varieties of Mergers
From the perspective of business structures, there is a whole host of different types of
mergers. Here are a few types, distinguished by the relationship between the two
companies that are merging.

Horizontal merger - Two companies that are in direct competition and share the same
product lines and markets.

Vertical merger - A customer and company or a supplier and company. Think of a cone
supplier merging with an ice cream maker.

Market-extension merger - Two companies that sell the same products in different
markets.

Product-extension merger - Two companies selling different but related products in the
same market.

Conglomeration - Two companies that have no common business areas.

There are also two types of mergers that are distinguished by how the merger is financed.
Each has certain implications for the companies involved and for investors:

Purchase Mergers - As the name suggests, this kind of merger occurs when one
company purchases another. The purchase is made with cash or through the issue of some
kind of debt instrument; the sale is taxable. Acquiring companies often prefer this type of

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merger because it can provide them with a tax benefit. Acquired assets can be written-up
to the actual purchase price, and the difference between the book value and the purchase
price of the assets can depreciate annually, reducing taxes payable by the acquiring
company. We will discuss this further in part four of this tutorial.

Consolidation Mergers - With this merger, a brand new company is formed and both
companies are bought and combined under the new entity. The tax terms are the same as
those of a purchase merger.

Acquisitions:
An acquisition may be only slightly different from a merger. In fact, it may be different in
name only. Like mergers, acquisitions are actions through which companies seek
economies of scale, efficiencies and enhanced market visibility. Unlike mergers, all
acquisitions involve one firm purchasing another — there is no exchange of stock or
consolidation as a new company. Acquisitions are often congenial, and all parties feel
satisfied with the deal. Other times, acquisitions are more hostile.

In an acquisition, a company can buy another company with cash, stock or a combination
of the two. Another possibility, which is common in smaller deals, is for one company to
acquire all the assets of another company. Company X buys all of Company Y's assets
for cash, which means that Company Y will have only cash (and debt, if they had debt
before). Of course, Company Y becomes merely a shell and will eventually liquidate or
enter another area of business.

Another type of acquisition is a reverse merger, a deal that enables a private company to
get publicly-listed in a relatively short time period. A reverse merger occurs when a
private company that has strong prospects and is eager to raise financing buys a publicly-
listed shell company, usually one with no business and limited assets. The private
company reverse merges into the public company, and together they become an entirely
new public corporation with tradable shares.

Regardless of their category or structure, all mergers and acquisitions have one common
goal: they are all meant to create synergy that makes the value of the combined
companies greater than the sum of the two parts. The success of a merger or acquisition
depends on whether this synergy is achieved.

What is a Hostile Takeover?

A hostile takeover is the acquisition of one company (called the target company) by
another (called the acquirer) that is accomplished by going directly to the company's

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shareholders or fighting to replace management to get the acquisition approved. A hostile
takeover can be accomplished through either a tender offer or a proxy fight.

The key characteristic of a hostile takeover is that the target company's management does
not want the deal to go through. Sometimes a company's management will defend against
unwanted hostile takeovers by using several controversial strategies, such as the poison
pill, the crown-jewel defense

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