Global Mergers or Joint Ventures 4.2 Global markets and business expansion

a) Spreading risk over different countries/regions What you need to know a) Spreading risk over different countries/regions b) Entering new markets/trade blocs c) Acquiring national/international brand names/patents d) Securing resources/supplies e) Maintaining/increasing global competitiveness

What is a Joint Venture? A joint venture (JV) is a separate business entity created by two or more parties, involving shared ownership, returns and risks

Potential Benefits of a Joint Venture JV partners benefit from each other's expertise and resources (e.g. market knowledge, customer base, distribution channels, R&D expertise) Each JV partner might have the option to acquire in the future the JV business based on agreed terms if it proves successful Reduces the risk of a growth strategy - particularly if it involves entering a new market or diversification

Potential Drawbacks of a Joint Venture JV partners benefit from each other's expertise and resources (e.g. market knowledge, customer base, distribution channels, R&D expertise) Each JV partner might have the option to acquire in the future the JV business based on agreed terms if it proves successful Reduces the risk of a growth strategy - particularly if it involves entering a new market or diversification

Examples of Global Joint Ventures Key reasons for this JV: Pool resources and expertise to enable innovation and leadership in an emerging global market opportunity. Also helps spread risk Key reasons for this JV: Enables Jaguar Land Rover to make cars in China for the first time (overcoming protectionism)

Examples of Global Joint Ventures Key reasons for this JV: Combining two business units into one in order to give the combined JV business greater scale and global competitiveness Key reasons for this JV: Enabling a relatively small UK technology firm to access and grow in the fastest-growing e-commerce market globally

What is a Merger? A merger is a combination of two previously separate firms which is achieved by forming a completely new firm into which the two original businesses are integrated

The Difference between a Merger and a Takeover Involves a NEW FIRM being created into which two existing businesses are “merged” Involves an EXISTING FIRM acquiring more than 50% of another firm and thereby gaining control of it

More on Mergers A merger is a combination of two previously separate firms which is achieved by forming a completely firm into which the two original firms are integrated. A merger can be seen as a decision made by two businesses that are broadly “equal” in terms of factors such as size, scale of operations, customers etc. The enlarged, merged business, through the changes made by combining both together, can cut costs, grow revenues and increase profits - which should benefit shareholders of both the original two businesses.

Examples of Mergers 2010: British Airways and Iberia merge to form IAG 2000: Glaxo Wellcome plc and SmithKline Beecham plc merge to form GSK plc 2014: Dixons plc and Carphone Warehouse merge to form Dixons Carphone 2015: Paddy Power and Betfair merge to form Paddy Power Betfair 2015: H.J. Heinz Company & Kraft Foods Group merge to form The Kraft Heinz Company

One to Watch – One of the Largest Global Mergers of All Time Key reasons for this Merger Global market leadership & economies of scale: newly-created firm will produce about 30% of the world's beer Aiming to create “the first truly global beer company” with a market share 3x the next largest competitor Also takes the new firm into fast-growing African and new Latin American markets.