JVA- Assignment 2 Questions

and Answers
SUBMITTED TO: Mr. Anant Phani

SUBMITTED BY:
ESHA SOMRA (09)
HARSHITA AGARWAL (10)
PRIYAL SADH (18)
REETU SRI (22)

Q.1. What is the difference between Merger, Acquisition and Joint Venture?
MERGER

A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a
stronger competitive advantage.

The combining of two or more companies, generally by offering the stockholders of one
company securities in the acquiring company in exchange for the surrender of their
stock

Example: Company A+ Company B= Company C.

MERGER: WHY & WHY NOT

Importance of merger:
i.
ii.
iii.
iv.
v.

Increase Market Share.

Economies of scale
Profit for Research and development.
Benefits on account of tax shields like carried forward losses or unclaimed depreciation.
Reduction of competition.

Why mergers fail:

i. Clash of corporate cultures
ii. Increased business complexity
iii. Employees may be resistant to change

ACQUISITION

A transaction where one firms buys another firm with the intent of more effectively
using a core competence by making the acquired firm a subsidiary within its portfolio of
business

It also known as a takeover or a buyout

It is the buying of one company by another.

In acquisition two companies are combine together to form a new company altogether.

Example: Company A+ Company B= Company A.

ACQUISITION: WHY & WHY NOT

Importance of Acquisition:
i.
ii.
iii.
iv.
v.

Increased market share.

Increased speed to market
Lower risk comparing to develop new products.
Increased diversification
Avoid excessive competition

Why acquisition Fail:

i.
ii.
iii.

Inadequate valuation of target.

Inability to achieve synergy.
Finance by taking huge debt.

JOINT VENTURE

Joint venture is a short duration special purpose partnership.

Joint venture does not follow the accounting concept 'going concern'.

The members of joint venture are known as co-ventures.

Joint venture is a temporary business activity.

In joint venture, profits and losses are shared in agreed proportion. If there is no
agreement regarding the distribution of profit, they will share profit equally.

Joint venture is an agreement for polling of capital and business abilities to be

employed in some profitable venture.

Example: Company A+ Company B=Company A and Company B come together

"temporarily"

JOINT VENTURE: WHY & WHY NOT

Importance of Joint venture:
i.
ii.
iii.
iv.
v.

Accessing additional financial resources:

Sharing the economic risk with co-ventures
Widening economic scope fast
Tapping newer methods, technology, and approach you do not have
Building relationship with vital contacts

Why Joint ventures fail:

i.
ii.
iii.
iv.

Shared profit Since you share assets, you also share the profit.
Diminished control over some important matters - Operational control and decision
making are sometimes compromised in joint ventures.
Undesired outcome of the quality of the product or project.
Uncontrolled or unmonitored increase in the operating cost

DIFFERENCE BETWEEN MERGERS, ACQUISITION AND JOINT VENTURES:

MERGERS
ACQUISITION
i.
Merging
of
two
i.
Buying
organizations in to
organization
one.
another.

JOINT VENTURES
one
i.
A
joint
venture
by
involves the joining

together of a subset
of the resources of
two (or more) parent
companies.

ii.

It is the
decision.

mutual

ii.

It can be friendly
takeover or hostile
takeover.

ii.

It is the
decision.

iii.

Through
merger
shareholders
can
increase their net
worth.

iii.

Buyers cannot raise

their enough capital.

iii.

In joint venture, profits

and losses are shared in
agreed proportion. If
there is no agreement
regarding
the
distribution of profit,
they will share profit
equally.

iv.

It is time consuming
and the company has
to maintain so much
legal issues.

iv.

It is faster and easier

transaction.

iv.

Joint venture is a short

duration
special
purpose partnership.

v.

Dilution of ownership
occurs in merger.

v.

The acquirer does not

experience the dilution
of ownership.

v.

After the project/job is

completed the joint
venture is dissolved
depending
on
coventures.

vi.

Example:-Flipkart
merger with Myntra
before the acquisition

vi.

Example:Flipkart
buying of Myntra

vi.

Example:-Arvind Joint
venture with PVH

mutual

Q.2. Why Joint venture is done?

What is a Joint Venture?

When two or more persons join together to carry out a specific business venture and share
the profits on an agreed basis it is called a 'joint venture'. Each one of them who join as a
party to the joint venture is called 'Co-Venturer'. No firm name is normally used for the joint
venture business because its duration is limited to a short period. During this period, the coventures are free to carry on their own business as usual, unless agreed otherwise. The
business relationship amongst the co-venturer comes to an end as soon as the venture is
completed. Thus, a joint venture is some kind of a temporary partnership between two or
more persons who have agreed to jointly carry out specific venture. The joint ventures are
quite common in construction business, consignment, sale and purchase of property,
underwriting of shares and debentures, etc.
For example, A and B agreed to construct a college building for which they pooled their
resources and skill, A provided Rs. 6 lakhs and B Rs. 4 lakhs as capital. They completed the
building and shared the profits in the ration of their contributions to capital. In this example,
joining hands by A and B to construct a building is a joint venture. A and B are co-ventures.
They will share the profits in the ration of 6 and 6 (same as the ratio of their capitals).
From the above the essential features of a joint venture can be listed as follows:
It is formed by two or more persons.
The purpose is to execute a particular venture or project
No specific firm name is used for the joint venture business.
It is of a temporary nature. Hence, the agreement regarding the venture
automatically stand terminated as soon as the venture is completed.
The co-venturers share profit and loss in the agreed ratio. However, in the absence
any other agreement between the co-venturers, the profits and loss are to be shared
equally.
During the tenure of joint venture, the co-venturers are free to continue with their
own business unless agreed otherwise.
A written Joint Venture Agreement should cover:

The parties involved

The objectives of the joint venture
Financial contributions you will each make whether you will transfer any assets or
employees to the joint venture
Intellectual property developed by the participants in the joint venture

Day to day management of finances, responsibilities and processes to be followed.

Dispute resolution, how any disagreements between the parties will be resolved
How if necessary the joint venture can be terminated.
The use of confidentiality or non-disclosure agreements is also recommended to
protect the parties when disclosing sensitive commercial secrets or confidential
information.

Entering a joint venture is a complex, and sometimes, time consuming process. As any type
business structure, it holds a good opportunity for anyone to grow and make money fast;
but just like any other business type; joint venture also holds threat to anyone who wants to
enter.
Internal Reasons to Form a JV

Spreading Costs You and a JV partner can share costs associated with marketing,
product development, and other expenses, reducing your financial burden.
Opening Access to Financial Resources Together you and a JV partner might have
better credit or more assets to access bigger resources for loans and grants than you
could obtain on your own.
Connection to Technological Resources - You might want access to technological
resources you couldnt afford on your own, or vice versa. Sharing innovative and
proprietary technology can improve products, as well as your own understanding of
technological processes.
Improving Access to New Markets You and a JV partner can combine customer
contacts and together even form a joint product that accesses new markets.
Help Economies of Scale Together you and a JV partner can develop products or
services that reduce total overall production expenses. Bring your product to market
cheaper where the customer can enjoy the cost savings.

External Reasons to Form a JV

Develop Stronger Innovative Product - Together you and a JV partner may be able to
share ideas to develop a product that is more competitive in your industry.
Improve Speed to Market With shared access to financial, technological, and
distribution resources, you and a JV partner can get your joint product to market faster
and more efficiently.
Strategic Move Against Competition A JV may be able to better compete against
another industry leader through the combination of markets, technology, and
innovation.

Strategic Reasons

Synergistic Reasons You may find a JV partner with whom you can create synergy,
which produces a greater result together than doing it on your own.
Share and Improve Technology and Skills Two innovative companies can share
technology to improve upon each others ideas and skills.
Diversification There could be many diversification reasons: access to diverse markets,
development of diverse products, diversifies the innovative working force, etc.

BIBLIOGRAPHY

http://www.referenceforbusiness.com/encyclopedia/Int-Jun/Joint-Ventures.html
http://jacobkuttyta.hubpages.com/hub/Joint-Venture1
http://www.rpemery.com/articles/advantages_and_disadvantages_jv.htm
http://www.mbaskool.com/business-articles/finance/94-mergers-vs-strategicalliances-vs-joint-ventures-the-difference.html
http://www.differencebetween.com/difference-between-merger-and-vs-jointventure/