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CHAPTER 12
MAKING ALLIANCES AND ACQUISITIONS WORK
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. define alliances and acquisitions.
2. articulate how institutions and resources influence alliances and acquisitions.
3. describe how alliances are formed.
4. outline how alliances are evolved and dissolved.
5. discuss how alliances perform.
6. explain why firms undertake acquisitions.
7. understand why acquisitions often fail.
8. participate in two leading debates concerning alliances and acquisitions.
9. draw implications for action.
GENERAL TEACHING SUGGESTIONS
Hardly a week goes by without some story in the Wall Street Journal about the formation of a
global alliance or acquisition. You might consider having groups of students research one of
these alliances or acquisitions and give an oral report discussing the application of chapter
concepts to the deal. Note: one of the benefits of an oral report is that people would have to do
more than just download something from the Internet in order to intelligently discuss the news.
OPENING CASE DISCUSSION GUIDE
Fiat Chrysler: From Alliance to Acquisition
In 2009, Chrysler went bankrupt. When it emerged from bankruptcy, it was owned by the U.S.
government, the Canadian government, the United Auto Workers, and Fiat. Chrysler and Fiat
combined their strengths to find success. Chrysler repaid its loans and repurchased its shares
from the U.S. and Canadian governments. Over time, Fiat continued to buy shares of Chrysler. In
2009, Fiat owned 20% of Chrysler. By 2014, Fiat owned 100% of Chrysler. The relationship that
started as an alliance in 2009 became an acquisition in 2014.
CHAPTER OUTLINE: KEY CONCEPTS AND TERMS
Sections I through IX of Chapter 12
I. DEFINING ALLIANCES AND ACQU1SITIONS
1. Key Concept
Important terminology related to alliances and acquisitions is introduced to understand
the balance of the chapter.
2. Key Terms
Acquisition is a transfer of the control of operations and management from one firm
(target) to another (acquirer), the former becoming a unit of the latter.
Contractual (non-equity-based) alliance is an alliance between firms that is based
on contracts and does not involve the sharing of ownership.
Cross-shareholding is both firms investing in each other to become
cross-shareholders.
Equity-based alliance is an alliance based on ownership or financial interest
between the firms.
Merger is the combination of operations and management of two firms to establish a
new legal entity.
Strategic alliance is a voluntary agreement of cooperation between firms.
Strategic investment is one firm investing in another as a strategic investor.
II. INSTITUTIONS, RESOURCES, ALLIANCES AND ACQUISITIONS
1. Key Concepts
Formal institutions influence alliances and acquisitions through antitrust and entry mode
concerns. Informal institutions affect alliances and acquisitions through normative and
cognitive pillars. The impact of resources on alliances and acquisitions is illustrated by
the VRIO framework.
2. Key Terms
Acquisition premium is the difference between the acquisition price and the market
value of target firms.
Due diligence is investigation prior to signing contracts.
Learning race is alliance partners aiming to outrun each other by learning the
“tricks” from the other side as fast as possible.
Organizational fit is the similarity in cultures, systems, and structures.
Real option is an investment in real operations as opposed to financial capital.
Relational (or collaborative) capability is the ability to manage interfirm
relationships.
Strategic fit is the effective matching of complementary strategic capabilities.
III. FORMATION OF ALLIANCES
1. Key Concept
Alliances are typically formed when managers go through a three-stage decision process.
Stage One: to cooperate or not to cooperate?
Stage Two: contract or equity?
Stage Three: specifying the relationship.
2. Key Terms
Learning by doing is a way of learning, not by reading books but by engaging in
hands-on activities.
IV. EVOLUTION AND DISSOLUTION OF ALLIANCES
1. Key Concepts
Managers need to combat opportunism and, if necessary, manage the dissolution process.
2. Key Terms
None
V. PERFORMANCE OF ALLIANCES
1. Key Concept
Four factors affect performance: (1) equity, (2) learning, (3) nationality, and (4) relational
capabilities.
2. Key Terms
None
VI. MOTIVES FOR ACQUISITIONS
1. Key Concept
Acquisitions are often driven by synergistic, hubristic, and managerial motives.
2. Key Terms
Hubris is overconfidence in one’s capabilities.
Managerial motive is a manager’s desire for power, prestige, and money which may
lead to decisions that do not benefit the firm overall in the long run.
VII.PERFORMANCE OF ACQUISITIONS
1. Key Concept
Many acquisitions fail because managers do not address pre- acquisition and
post-acquisition problems.
2. Key Terms
None
VIII. DEBATES AND EXTENSIONS
1. Key Concept
The debates involve (1) alliances versus acquisitions and (2) majority JVs versus
minority JVs.
2. Key Terms
None
IX. MANAGEMENT SAVVY
1. Key Concept
Managers need to understand and master the rules of the game governing alliances and
acquisitions around the world. When managing alliances, managers must pay attention to
the “soft” relationship aspects. When managing acquisitions, the savvy manager should
not overpay and should focus on both strategic and organizational fit.
2. Key Terms
None
