Business Alliances: Joint Ventures, Partnerships, and Alliances Solutions to End of Chapter Discussion Questions

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hapter 15 Business Alliances: Joint Ventures, Partnerships, and Alliances Solutions to End of Chapter Discussion Questions 15.1 What is a limited liability company? What are its advantages and di... sadvantages? Answer: LLCs were first recognized for tax purposes in 1988. The LLC combines features of the corporation and the limited partnership and offers both tax and non-tax benefits. Like a corporation, the LLC protects all its owners from liability, whether or not they participate in the management of the company. This feature enables owners to be managers without running the risk of losing their limited liability protection. Like a limited partnership, the LLC passes through all the profits and losses of the entity to its owners without itself being taxed. Unlike S-type corporations, LLCs can own more than 80% of another corporation, have an unlimited number of shareholders, and corporations as well as non-U.S. residents can own LLC shares. The LLC can also sell shares without completing the costly and time-consuming process of registering them with the Securities Exchange Commission (SEC), which is required for corporations that sell their securities to the public. This arrangement works well for corporate JVs or projects developed through a subsidiary or affiliate. The parent corporation can separate a JV’s risk from its other businesses while getting favorable tax treatment and greater flexibility in the allocation of revenues and losses among owners. Finally, LLCs can incorporate before an initial public offering (IPO) tax-free. The LLC’s drawbacks are evident if one owner decides to leave. All other owners must formally agree to continue the firm. In addition, all of the LLC’s owners must take active roles in managing the firm. 15.2 Why is defining the scope of a business alliance important? Answer: Scope outlines how broadly the alliance will be applied in pursuing its purpose. For example, an alliance whose purpose is to commercialize products developed by the partners could be broadly or narrowly defined in specifying what products or services are to be offered, to whom, in what geographic areas, and for what period of time. Failure to define scope adequately can lead to situations in which the alliance may be competing with the products or services offered by the parent firms. Furthermore, alliances are not static. Products developed for one purpose may prove to have other applications in the future. With respect to both current and future products, the alliance agreement should identify who receives rights to market or distribute products, manufacture products, acquire or license technology, or purchase products from the venture. 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? 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? 3. How do you believe the ownership distribution for MillersCoors was determined? 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. Discussion Questions: 1. Describe the advantages of the supply agreement to Garmin compared to outright acquisition of Tele Atlas? 2. Describe the disadvantages of the supply agreement to Garmin? 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. 2. What happened since 1995 that might have contributed to the break-up? (Hint: Consider partner objectives, perceived relative contribution and in-house capabilities.) 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) 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 overreacted? Discussion Questions: 1. In your opinion, what were the motivating factors for the Coke and P&G business alliance? 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? 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? 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? 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? 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. Discussion Questions 1. What are the elements that each alliance has in common? Of these, which do you believe are the most important? 2. | In what way do these alliances represent a convergence of “bricks and clicks?” 3. In your judgment, do these alliances deliver real value to the consumer? Explain your answer. Discussion Questions: 1. What other motives may General Motors have had in making this investment? government. 2. Why do you believe that General Motors may have wanted to limit initially its investment to 20%? 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? 35 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? 2. What types of mechanisms could be used other than litigation to resolve such differences once they arise? Discussion Questions: 1. Describe the operational and managerial challenges facing the two partners. 36 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? Discussion Questions: 1. What did Verizon Communications and Vodafone expect to get out of the business alliance? 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 differently? 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. 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