Chapter 11 – Alliances and
Acquisitions
Strategic alliance is a voluntary agreement of cooperation between firms
Contractual (non-equity-based) alliances are associations between firms that
are based on contracts and do not involve the sharing of ownership
Equity-based alliances are alliances based on ownership or financial interest
between the firms
Strategic investment is when one firm invests in another as a strategic
investor
Cross-shareholding is when both firms invest in each other
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
Merger is the combination of operations and management of two firms to
establish a new legal entity
Institution-based view
o Formal institutions
Antitrust and entry mode concerns
o Informal institutions
Normative and cognitive pillars
Resource-based view (alliances)
o Value
o Rarity
o Imitability
o Organization
Due diligence is investigation prior to signing contracts
Real option is an investment in real operations as opposed to financial capital
o Make a relatively small, initial investment to buy an option, which
leads to the right to make a future investment without being obligated
to do so
o The investor then holds the option until a decision point arrives in the
second phase, and then decides between exercising the option or
abandoning it
Learning race is a situation in which alliance partners aim to outrun each
other by learning the “tricks” form the other side as fast as possible
Acquisitions
Strategic alliance is a voluntary agreement of cooperation between firms
Contractual (non-equity-based) alliances are associations between firms that
are based on contracts and do not involve the sharing of ownership
Equity-based alliances are alliances based on ownership or financial interest
between the firms
Strategic investment is when one firm invests in another as a strategic
investor
Cross-shareholding is when both firms invest in each other
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
Merger is the combination of operations and management of two firms to
establish a new legal entity
Institution-based view
o Formal institutions
Antitrust and entry mode concerns
o Informal institutions
Normative and cognitive pillars
Resource-based view (alliances)
o Value
o Rarity
o Imitability
o Organization
Due diligence is investigation prior to signing contracts
Real option is an investment in real operations as opposed to financial capital
o Make a relatively small, initial investment to buy an option, which
leads to the right to make a future investment without being obligated
to do so
o The investor then holds the option until a decision point arrives in the
second phase, and then decides between exercising the option or
abandoning it
Learning race is a situation in which alliance partners aim to outrun each
other by learning the “tricks” form the other side as fast as possible
