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6. How can BP best protect their interests in the JV with Rosneft in the highly uncertain political
and economic environment of Russia?
Answer: While the JV agreement can specify the rights of each party including if the JV is
dissolved, the effectiveness of the agreement depends primarily on how it would be enforced
SABMiller in Joint Venture with Molson Coors
On October 10, 2007, SABMiller (SAB) and Molson Coors (Coors) agreed to combine their U.S. brewing
operations into a joint venture corporation. The stated objective was to create a rival capable of competing
with Anheuser-Busch, the maker of Budweiser beer. SAB and Coors, the second and third largest
breweries, respectively, in the United States in terms of market share, have equal voting rights in the newly
formed entity. Each firm has five representatives on the board. In terms of ownership, SAB, the larger of
the two in terms of sales and profits, has a 58-percent stake and Coors a 42-percent position. The combined
From its roots in South Africa, the former SAB PLC grew rapidly over the previous decade by
expanding into fast growing economies such as China, Eastern Europe, and Latin America. SAB acquired
Miller Brewing Company in 2002, but the U.S. business failed to gain significant market share in
competing with Anheuser-Busch's pervasive brand awareness and distribution strength. Molson Coors was
formed by the 2005 merger of Colorado's Adolph Coors Co. and Canada's Molson Inc., both family-
controlled companies. The families were unwilling to sell their entire companies to another firm. The JV
allows them to keep some control. Molson Coors, with dual headquarters in Montreal and Denver, has
major operations in Canada and Britain that would remain independent of SABMiller. Reflecting its larger
market share, brand recognition, and negotiating clout with distributors, Anheuser-Busch has operating
profit margins of 23 percent, double SAB's or Coors's margins. SAB is larger in terms of both revenue and
profit than Coors.
growing at an annual rate of about 1.5 percent.
MillerCoors anticipated annual cost savings to reach $500 million by the third year of operation and be
accretive for both parent firms by the second full year of combined operations. The cost savings result from
streamlining production, reducing shipping distances between plants and distribution sites, and cutting
corporate staff. Shipping costs represent a significant cost, given the nature of the product. By producing
both firms' products in the eight plants geographically distributed across the Midwestern and western
United States, MillerCoors should realize significant savings in meeting customer demand for both
products in the immediate proximity of each plant.
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Discussion Questions:
1. What tactics do you think Anheuser might employ to exploit the predicted confusion during
the integration of the SABMiller and Coors operations?
Answer: Following the announcement of a merger or joint venture, employees of the
organizations involved are likely to be uncertain about their roles in the future of the
2. How did the combination of the U.S. operations of SABMiller and MolsonCoors meet the
needs of the two parties? Why was a JV viewed as preferable to a merger of the two firm’s
global operations?
Neither SAB nor Coors were particularly profitable in the U.S. and were threatened with
3. How do you believe the ownership distribution for MillersCoors was determined?
While both firms were significantly less profitable than Anheuser, SAB was larger and more
4. Why do you believe that SAB and Coors agreed to equal board representation and voting
rights in the new JV? What types of governance issues might arise in view of the governance
structure of MillersCoors? What mechanisms might have been put in place by the partners
prior to closing to resolve possible governance issues? Be specific.
Answer: The Molson and Coors families, fearful of losing control of their U.S. operations,
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MICROSOFT PARTNERS WITH YAHOO!—AN ALTERNATIVE TO TAKEOVER?
Business alliances sometimes represent a less expensive alternative to mergers and acquisitions. This
notion may have motivated Microsoft when the firm first approached Yahoo! about a potential partnership
in November 2006 and again in mid-2007. Frustrated with their inability to partner with Yahoo!, Microsoft
initiated a hostile takeover bid in 2008 valued at almost $48 billion or $33 per share, only to be spurned by
Yahoo!. Following the withdrawal of Microsoft’s offer, Yahoo!’s share price fell into the low to mid-teens
and remained in that range throughout 2010.
Reflecting the slumping share price and a failed effort to create a search partnership with Google,
Yahoo!’s cofounder, Jerry Yang, was replaced by Carol Bartz in early 2009. The U.S. Justice Department
had threatened to sue to block the proposed partnership between Yahoo! and Google on antitrust grounds.
Garmin Utilizes Supply Agreement as Alternative to Acquiring Tele Atlas
Following an aggressive bidding process, Garmin Ltd., the largest U.S. maker of car-navigation devices,
withdrew its bid for the Netherlands-based Tele Atlas NV on November 16, 2007. Tele Atlas provides
maps of 12 million miles of roads in 200 countries. The move cleared the way for TomTom NV to buy the
mapmaker for $4.25 billion. Both Garmin and TomTom are leading manufacturers of global positioning
systems (GPSs), which enable users to navigate more easily through unfamiliar territory. The most critical
component of such navigation systems is the map.
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By owning the maps, TomTom is seeking to become more of a service provider than simply a
manufacturer of GPS devices. Such devices are widely used in the automotive industry, as well as aviation
and boating. The biggest growth opportunity is the increased use of GPS tracking capabilities in the market
for mobile phones. This application is expected to dwarf the transportation and sports markets for GPS
devices.
Discussion Questions:
1. Describe the advantages of the supply agreement to Garmin compared to outright acquisition
of Tele Atlas?
Answer: In the short-run, Garmin will have achieved its objective at a much lower total cost.
The acquisition of TeleAtlas by TomTom at what may have been an inflated price may reduce
2. Describe the disadvantages of the supply agreement to Garmin?
Answer: Garmin’s ability to develop new products will be limited. Also, it will have to pay
Pixar and Disney Part Company
The announcement on February 5, 2004, of the end of the wildly successful partnership between Walt
Disney Company ("Disney") and Pixar Animation Studios ("Pixar") rocked the investment and
entertainment world. While the partnership continued until the end of 2005, the split-up underscores the
nature of the rifts that can develop in business alliances of all types. The dissolution of the partnership ends
a relationship in existence since 1995 in which Disney produced and distributed the highly popular films
created by Pixar. Under the terms of the original partnership agreement, the two firms cofinanced each film
and split the profits evenly. Moreover, Disney received 12.5 percent of film revenues for distributing the
films. Negotiations to renew the partnership after 2005 foundered on Pixar's desire to get a greater share of
the partnership's profits. Disney CEO Michael Eisner refused to accept a significant reduction in
distribution fees and film royalties; while Steve Jobs, Pixar's CEO, criticized Disney's creative capabilities
and noted that marketing alone does not make a poor film successful.
After 10 months of talks between Disney and Pixar, Disney rejected a deal that would have required it to
earn substantially less from future Pixar releases. Disney also would have had to relinquish potentially
lucrative copyrights to existing films such as Toy Story and Finding Nemo. Disney shares immediately fell
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Epilogue
In early 2006, Pixar agreed to be acquired by Disney.
Discussion Questions:
1. In your opinion, what were the motivations for forming the Disney-Pixar partnership in 1995? Which
partner do you believe had the greatest leverage in these negotiations? Explain your answer.
Answer: The motivation for the partnership focused on risk sharing and perceived synergy, with
neither partner believing they had all the resources necessary to be successful in a “go it alone” movie
2. What happened since 1995 that might have contributed to the break-up? (Hint: Consider partner
objectives, perceived relative contribution and in-house capabilities.)
Answer: Initially, the partners shared common objectives in their desire to make highly entertaining
animated films. They also had a healthy respect for each other’s talents and capabilities. Roles and
3. How does the dissolution of the partnership leave Disney vulnerable? What could Disney have done to
protect itself from these vulnerabilities in the original negotiations? (Hint: Consider scope of the
agreement, management and control, dispute resolution mechanisms, valuation of tangible and
intangible assets, ownership of partnership assets following dissolution, performance criteria)
Answer: Disney is vulnerable because it cutback on its own in-house animation and creative
capabilities, choosing to rely on Pixar’s for making animate movies. Furthermore, the dissolution of
the partnership has created an awesome animated film competitor. Disney had the greater leverage in
4. What does the reaction of the stock market and credit rating agencies tell you about how investors
value the contribution of the two partners to the partnership? Do you think investors may have over-
reacted?
Answer: Investors and rating agencies are placing a higher value on creative talent than on studio
production and distribution capabilities.
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Coca-Cola and Procter & Gamble's Aborted Effort to Create a Global Joint Venture Company
Coca-Cola (Coke), arguably the world's best-known brand, manufactures and distributes Coca-Cola as well
as 230 other products in 200 countries through the world's largest distribution system. Procter & Gamble
(P&G) sells 300 brands to nearly 5 billion consumers in 140 countries and holds more food patents than the
three largest U.S. food companies combined. Moreover, P&G has a substantial number of new food and
beverage products under development. Both firms have been competing in the health and wellness segment
of the food market for years. P&G spends about 5 percent of its annual sales, about $1.9 billion, on R&D
and holds more than 27,000 patents. The firm employs about 6,000 scientists, including about 1,200 people
with PhDs.
On February 21, 2001, Coca-Cola and Procter & Gamble announced, amid great fanfare, plans to create
a stand-alone joint venture corporation focused on developing and marketing new juice and juice-based
beverages as well as snacks on a global basis. The new company expected to benefit from Coca-Cola's
worldwide distribution, merchandising, and customer marketing skills and P&G's R&D capabilities and
wide range of popular brands. The new company would focus on the health and wellness segment of the
food market. Less than nine months later, Coke and P&G released a one-sentence joint statement on
September 21, 2001, that they could achieve better returns for their respective shareholders if they pursued
this opportunity independently. Although it is unclear what may have derailed what initially had seemed to
the potential partners like such a good idea, it is instructive to examine the initial rationale for the proposed
joint effort.
Although the new firm was to have access to all distribution systems of the parents, it would have been
free to choose the best route to market for each product. Although Minute Maid was to continue to use
Coke's distribution channels, it also was to take advantage of existing refrigerated distribution systems built
for Sunny Delight. Pringles was to use a variety of distribution systems, including the existing warehouse
system. The Pringles brand was expected to take full advantage of Coke's global distribution and
merchandising capabilities. Minute Maid was to gain access to new outlets through Coke's fountain and
direct store distribution system.
The new company's sales were expected to grow from $4 billion during the first 12 months of operation
to more than $5 billion within two years. The combination of increasing revenue and cost savings was
expected to contribute about $200 million in pretax earnings annually by 2005. Specifically, Pringles's
revenue growth as a result of enhanced distribution was expected to contribute about $120 million of this
projected improvement in pretax earnings. The importance of improved distribution is illustrated by noting
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The results of the LLC were not to be consolidated with those of the parents but rather shown using the
equity method of accounting. Under this method of accounting, each parent's proportionate share of
earnings (or losses) is shown on its income statement, and its equity interest in the LLC is displayed on its
balance sheets. The new company was expected to be nondilutive of the earnings of the parents during its
first full year of operations and contribute to earnings per share in subsequent years. The incremental
earnings were expected to improve the market value of the parents by at least $1.5–2.0 billion (Bachman,
2001).
Some observers suggested that P&G would stand to benefit the most from the JV. It would have gained
substantially by obtaining access to the growing vending machine market. Historically, P&G's penetration
Discussion Questions:
1. In your opinion, what were the motivating factors for the Coke and P&G business alliance?
Answer: From P&G’s perspective, Coke provided an incredibly powerful brand name, as well as a
worldwide distribution, merchandising, and marketing prowess. From Coke’s perspective, P&G
2. Why do you think the parents selected a limited liability company structure for the new company?
What are the advantages and disadvantages of this structure over alternative legal structures?
Answer: The advantage of an LLC is that either parent’s liability will be limited to their individual
investment in the JV. Both parents have had to deal with product liability lawsuits. The new
company can help protect the parents from potential lawsuits. An LLC also has tax benefits as it
allows the partners to avoid double taxation by passing all profits through to the partners. An LLC
also allows either parent to own more than 80% of the stock of another company, and it can have
3. The parents estimate that the new company will add at least $1.5-$2.0 billion to their market
values. How do you think this estimated incremental value was determined?
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4. Why do you think the parents opted to form a 50/50 distribution of ownership? What are some of
the possible challenges of operating the new company with this type of an ownership
arrangement? What can the parents do to overcome these challenges?
Answer: In a JV of this type, it is common for participants to calculate their expected ownership
5. Do you think it is likely that the new company will become highly entrepreneurial and innovative?
Why? / Why not? What can the parents do to stimulate the development of this type of an
environment within the new company?
Answer: The JV has the potential to be entrepreneurial as long as the administrative bureaucracies
6. What factors may have contributed to the decision to discontinue efforts to implement the joint
venture? Consider control, scope, financial, and resource contribution issues.
Answer: While the distribution of ownership may be 50/50, defining the veto rights of the parents
and which parent is responsible for what activities often becomes quite contentious. Many JVs
Getting Wired: Wal-Mart–America Online and Other Internet Marketing Alliances
During the second half of 1999, the number of marketing alliances between major retailers and Internet
companies exploded. Wal-Mart Stores, the world’s biggest retailer, and Circuit City, a large consumer
electronics retailer, announced partnerships with America Online (AOL). Best Buy, the largest U.S.
consumer electronics chain, collaborated with Microsoft, which previously had joined with Tandy
Wal-Mart and AOL
Wal-Mart and AOL have agreed to create a low-cost Web service for consumers who lack access and to
promote each other’s services. Wal-Mart customers will get software that allows them to set up the service
through AOL’s CompuServe service. The retailer also will distribute AOL’s software with a link to Wal-
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Microsoft, Best Buy, and RadioShack
Through its alliance with Best Buy, Microsoft is selling its products—including Microsoft Network (MSN)
Internet access services and hand-held devices such as digital telephones, hand-held organizers, and
WebTV that connect to the Web—through kiosks in Best Buy’s 354 stores nationwide. In exchange,
Microsoft has invested $200 million in Best Buy. Microsoft has a similar arrangement with Tandy
Company’s RadioShack stores in which it agreed to invest $100 million in Tandy’s online sales site in
Circuit City and America Online
AOL and Circuit City entered a strategic alliance to provide in-store promotion of AOL products and
services to Circuit City shoppers nationwide, to make AOL Circuit City’s preferred Internet online service,
and to feature Circuit City as an anchor tenant in AOL’s shopping mall. Under the agreement, AOL
products and services are displayed prominently in dedicated retail space in Circuit City’s 615 stores across
Discussion Questions
1. What are the elements that each alliance has in common? Of these, which do you believe are the
most important?
Answer: All the alliances represent cross-marketing arrangements in which each participant
agrees to distribute their products or services through the other partner’s distribution channel to
their customers. In addition, each alliance represents a relatively small capital investment or
2. In what way do these alliances represent a convergence of “bricks and clicks?”
Answer: In all cases, the alliances represent the collaboration of electronic with traditional retail
3. In your judgment, do these alliances deliver real value to the consumer? Explain your answer.
GENERAL MOTORS BUYS 20% OF SUBARU
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In late 1999, General Motors (GM), the world’s largest auto manufacturer, agreed to purchase 20% of
Japan’s Fuji Heavy Industries, Ltd., the manufacturer of Subaru vehicles, for $1.4 billion. GM’s objective
is to accelerate GM’s push into Asia. The investment gives GM an interest in an auto manufacturer known
for four-wheel drive vehicles. In combination with its current holdings, GM now has a position in every
Discussion Questions:
1. What other motives may General Motors have had in making this investment?
Answer: Other GM motives could include access to proprietary technologies, the opportunity to
2. Why do you believe that General Motors may have wanted to limit initially its investment to 20%?
Answer: The low minority investment provided a low cost way for GM to gain sufficient access to
Bridgestone Acquires Firestone’s Tire Assets
Bridgestone Tire, a Japanese company, lacking a source of retail distribution in the United States,
approached its competitor, Firestone, to create a JV whose formation involved two stages. In the first stage,
Firestone, which consisted of a tire manufacturing and distribution division and a diversified rubber
products division, agreed to transfer its tire manufacturing operations into a subsidiary. This subsidiary was
Case Study Discussion Questions
1. What other options for entering the United States could Bridgestone have considered?
2. Why do you believe Bridgestone chose to invest in Firestone rather than pursue another option?
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Johnson & Johnson Sues Amgen
In 1999, Johnson & Johnson (J&J) sued Amgen over their 14-year alliance to sell a blood-enhancing
treatment called erythropoietin. The disagreement began when unforeseen competitive changes in the
marketplace and mistrust between the partners began to strain the relationship. The relationship had begun
Case Study Discussion Questions
1. What could these companies have done before forming the alliance to have mitigated the problems
that arose after the alliance was formed? Why do you believe they may have avoided addressing
these issues at the outset?
Answer: In negotiating the original partnership agreement, the partners would have been well
2. What types of mechanisms could be used other than litigation to resolve such differences once
they arise?
Conoco Phillips Buys a Stake in Russian Oil Giant Lukoil
In late 2004, Conoco Phillips (Conoco) announced the purchase of 7.6 percent of Lukoil’s (a largely
government owned Russian oil and gas company) stock for $2.36 billion during a government auction of
Lukoil’s stock. The deal gives Conoco access to Russia’s huge, but largely undeveloped, oil and natural
gas reserves. Conoco intends to boost its investment to 10 percent by yearend and to 20 percent within
Discussion Questions:
1. Describe the operational and managerial challenges facing the two partners.
Answer: As a minority owner, Conoco is unlikely to have had significant operational control,
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2. Do you believe that Conoco gained an effective say in Lukoil’s operations following its
investment? Explain your answer.
3. Why do you believe Conoco’s stock fell immediately following the announcement?
Answer: Investors were disappointed with the perceived lack of control and may have mistrusted
Strains Threaten Verizon and Vodafone Joint Venture
Vodafone Group, the U.K. based cell phone behemoth wanted to expand geographic coverage in the U.S.
In 2000, they teamed up with Verizon Communications to form Verizon Wireless. The profitable business
had annual revenues of $20 billion and a coast-to-coast network serving more U.S. customers than any
other carrier. However, Vodafone’s global ambitions and its buy-out option threatened to put the venture at
risk of breaking up.
Vodafone executives expressed frustration by the company’s lack of control in the U.S., because it owns
just 45 percent of the venture. Vodafone seeking to establish its own brand name has been unable to get its
name attached to a single product of the joint venture. Moreover, it has been unable to persuade the venture
to use a technology compatible with that used by Vodafone in most of the 28 other countries in which it
The cloud hanging over Verizon Wireless is the put that Vodafone received as part of its initial
investment which gives it the right to sell its interests to Verizon at certain points through 2006. Vodafone
can demand that Verizon pay it $10 billion in return for its stake. Mindful of the put, the partners have
discussed friendlier ways to alter their relationship. For example, Vodafone could swap part of its stake in
the venture for Verizon Communications’ interest in Italian wireless operation Omnitel. Anything that
reduced Vodafone’s interest in Verizon Wireless below 20 percent would free Vodafone from a non-
compete clause that precludes the firm from opening up its own operation in the U.S.
Discussion Questions:
1. What did Verizon Communications and Vodafone expect to get out of the business alliance?
Answer: Both parties sought to expand their wireless geographic coverage in the U.S. Vodafone
needed to expand its coverage in the eastern and Midwestern U.S., while Verizon needed
2. To what extent are the problems plaguing the venture today a reflection of failure to?
communicate during the negotiations to form the joint venture? What should they have done
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differently?
Answer: Vodafone was frustrated in its inability to extend its brand name to new products created
3. Give examples of how the partners’ objectives differ.
4. How could Verizon Communications have protected itself from the leverage Vodafone’s put
option provides? Explain your answer.
Answer: The best alliance agreements avoid clauses such as fixed or minimum buy out prices,
