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Archives: Alliances

Hollywood Rejects Top Offer

As the bidding war for Hollywood Video continues between competitors Blockbuster and Movie Gallery, Hollywood’s board is encouraging its shareholders to reject the highest offer, the $14.50 in stock and cash from Blockbuster.

According to The Portland Business Journal, Blockbuster Inc. said that it will pay $1,146.24 cash for each $1,000 worth of Hollywood Entertainment Corp.'s 9.625 percent senior subordinated notes due in 2011. If this bid is successful Blockbuster will hold almost two-thirds of Hollywood's $350 million in debt. However, earlier this month Hollywood's board told its shareholders to reject Blockbuster’s bid while it endorsed that of Movie Gallery’s, $13.25 per share. Although a lower offer Blockbuster’s board fears that a purchase by Blockbuster will be blocked by the FTC for a violation of antitrust laws.

Canadian-Chinese 3G Alliance

The Canadian telecommunications company, Nortel Networks, is forming an alliance with the Beijing-based China Putian Corporation to develop and product third generation (3G) mobile phone technology.

 

According to China View, the new company, to be called Putian-Nortel Networks Telecommunications Equipment Co., will focus on TD-SCDMA and WCDMA, which are both third generation communications standards for mobile telecommunication.

This alliance marks the first step for these two companies to try to bring Chinese 3G technology to the international market.

Virgin Seeks Ally in China

Earlier today IBM announced the sale of its PC division to the Chinese PC maker, Lenovo Group Ltd. Lenovo is China’s biggest computer maker and hopes to use the IBM brand to bolster its recently weak performance. However, this was not the only company that announced its intention of creating an Anglo-Sino alliance to take advantage of developing Chinese technology.   

 

According to the Guardian, Virgin Group announced today that it is in negotiations with several Chinese telecoms to form a joint venture in order to set up a network in China. The proposed deal would create an independent entity half owned by Virgin at a cost of around $300 million.

The group’s famed chairman, Richard Branson, states that this is a long term project which could take up to 12-18 months for it to even launch. This anticipated launch date is conveniently near the time when the Chinese government is expected to announce the number of licenses it will issue for third generation mobile service.

Competition for Hollywood

On the heels of Blockbuster's offer to acquire Hollywood Entertainment Corp., Movie Gallery has announced its intentions to pursue the video rental company. Movie Gallery claims that its proposal is “superior” to that of Blockbuster and argues that unlike an attempted merger with Blockbuster, a deal with them would be possible.

 

In making its bid, Movie Gallery told Hollywood that their deal with Blockbuster would be in violation of antitrust laws. According to the Wall Street Journal, Movie Gallery believes that because 85% of the Hollywood stores in urban markets are within 5 miles of a Blockbuster store, antitrust regulators would not approve the deal.  However, Blockbuster claims that the deal would survive antitrust scrutiny because the combined company would only have a 20% share of the home video market when including mass and internet retailers.

Since Movie Gallery is only one-third the size of Blockbuster, to match Blockbuster's offer Movie Gallery would have to take debt of more than 5.5 times its earnings before interest, taxes, depreciation, and amortization.

The market reacted with little enthusiasm for the deal on Friday with Hollywood shares increasing 7.3% but both Movie Gallery and Blockbuster falling.

Sears - Kmart Merger

In a surprise strategic move to save the troubled retailers Sears and Kmart announced their merger this morning.  This new company, to be called Sears Holdings Corp., will be formed in deal valued at over $11 billion will create the third largest retailer with $55 billion in annual revenue and 2,350 full-line and off-mall stores, and 1,100 specialty retail stores.

EC v. Microsoft...Again

In another show of concern for Microsoft the European Commission has sent a “statement of objection” to the software giant, along with Time Warner and ContentGuard, regarding the former two’s joint takeover of the latter. 

The Business Standard reports that the reason for the EC’s worries is that it fears a takeover by Microsoft and Time Warner of ContentGuard would increase Microsoft’s dominance in the market for digital-rights management.  This deal would give Microsoft control over key technologies in the digital media market.  This technology is important to the development of digital entertainment because it “controls the way consumers use online music and films.”

While the Commission's concern does not necessarily mean that it will block the deal, The Register reports that a final decision is due in January. 

In a related note the European Commission has decided it will pursue its antitrust case against Microsoft despite its recent settlement with Novell.

Harvard Negotiating 102, "Getting Past Yes"

Negotiating is an art that many engage in but at which few people excel. In the context of alliances, negotiations play an essential role, if not the essential role, of any deal. Negotiations create alliances and residual effects of negotiations destroy alliances. The problem is that the negotiators themselves often lead to the demise of the alliance in the long run, even if they are successful in the short term.

According to an article in the November issue of the Harvard Business Review entitled, “Getting Past Yes,” by Danny Ertel, deal makers often negotiate with the wrong goal in mind, getting the contract signed, as opposed to solidifying terms that will benefit the parties in the long run. In fact, companies often compensate based on the size of the deal that gets signed, and the well known negotiations books teach that “closing” is the final destination. Ertel argues that the techniques that are used in this approach have a direct relation to the ultimate failure of the deal, after the closing..

The negotiators whose goal is to get the contract signed behave differently in negotiations than those who see the agreement as the beginning of a long relationship, the goal of which is to create value. Ertel believes that these contrasting approaches have different opinions on such matters as the use of surprise and the sharing of information. These two camps “also differ in how much attention they pay to whether the parties’ commitments are realistic, whether their stakeholders are sufficiently aligned, and whether those who must implement the deal can establish a suitable working relationship with one another.”

In addition to these underlying problems, companies often bring in “hired guns” to ensure the deal is closed with the fewest concessions. The people who are then placed to implement the new terms of the alliance have no contact with the “hired guns” and don’t know why such structure exists. Finally, these “hired guns” can create animosity between the parties as efficiently as they can close the deal, and this feeling lasts long after the contracts are signed.

The article then lists five methods that if adapted, could affect the success of alliances.

1. Start with the end in mind; look down the road a year into the deal and anticipate its success by looking at what terms need to be in place to accomplish stated objectives.

2. Help them prepare, too; when looking to be successful at implementation it is important to make sure the other side is as well prepared as you are during negotiations, as opposed to trying to gain an advantage through surprise.

3. Treat alignment as a shared responsibility; don’t rely on secrecy to achieve your goals, think about informing internal stakeholders of your interests and objectives so that they can provide you with suggestions to improve the outcome. Acceptance of the deal by the people who are necessary for its implementation is essential. While it is also necessary to withhold information from some people, “suitable proxies should be identified to ensure that their perspectives (and the roles they will play during implementation) are considered at the table.”

4. Send one message; the team that negotiated the terms of the contract need to inform all the people involved in its implementation the reasons why it is structured as it is so that this implementation team can start off on the same page.

5. Manage negotiation like a business process; consider the costs and challenges of executing the deal terms, rather than simply focusing on getting the other side to say yes.

This article is also good in that it illustrates the results of a number of companies that have used these different approaches to negotiations. Despite the hard work and potential additional costs of this style of negotiation the author leaves you with this thought; “the most expensive deal is the one that fails.”

Joint Venture to Bring Broadband to 16M in Argentina

WebSky Inc. announced that it is forming a joint venture with a local telecommunications company to develop a wireless broadband internet system for Buenos Aires. This is a major product for Websky considering the service area to be covered by the agreement has a population of over 16 million.

A report issued by the United Nations in September stated that there were 110,000 broadband subcribers in all of Argentina at the end of 2003, though most were within the service area covered by the agreement. According to local observers this figure had increased to 155,000 in July. Yet despite this increase, only 10% of all internet subscribers use broadband.

WebSky Inc. is a San Fracisco based company that controls licensed radio frequencies in seven U.S. cities. In addition to the joint venture in Buenos Aires, Websky has entered preliminary joint venture agreements with companies in India, Thailand, and Indonesia.

This information was taken from Business Wire.

Legal Woes May Not Disrupt Creation of World’s Largest Banking Group

The complex game of mergers and acquisitions has become even more complicated by lawsuits as Mitsubishi Tokyo Financial Group Inc. attempts to merge with UFJ Holdings Inc. However, an injunction filed by Sumitomo Trust & Banking Co. Ltd. may not be able to stop the deal.

According to Martin Foster’s article, "Sumitomo Trust Weighs Legal Move" in The Daily Deal, Sumitomo Trust & Banking Co. is considering filing a formal injunction against the merger after their agreement to buy UFJ’s trust bank for $2.75 billion broke apart two months ago. Japan’s supreme court overturned a provisional injunction against the merger but “left the door open” for continued litigation when it ruled that the negotiating rights between Sumitomo Trust and UJF Holdings were binding.

A spokesman for Sumitomo Trust stated that legal action “will eventually happen.”

However, the Nihon Keizai Shimbun newspaper reported that if Sumitomo Trust does decide to pursue further legal action, a decision on the matter may take more than a year and would therefore come too late to prevent the merger, which is planned for October 2005.

Molson/Coors Merger in Doubt?

The Federal Trade Commission approved the merger today of Canada’s largest brewer and the U.S.’s third largest brewer. However, the deal between Adolph Coors Co. and Molson Inc. may still have a ways to go before it becomes a reality.

According to Forbes, the new entity, to be called Molson Coors Brewing Co., would become North America’s largest brewer surpassing Anheuser-Busch and SAB Miller with a total of $6 billion in revenues.

Although the FTC decision today paves the way for the merger, there is still another hurdle that needs to be overcome. The deal proposal now has to goes to the companies' shareholders for approval, which may not be an easy task.

According to Bloomberg, the merger requires approval of 2/3 of the stockholders of Molson’s class A shares. In an effort to aid its chances of being approved, Molson's management has proposed a plan to allow holders of options for their class A shares to vote on the deal. This plan is being staunchly opposed by almost 10% of class A stockholders.

On another bad note, if stock performance is any guide to the future success of a merger, which it often is, this merger is in trouble. Since the merger announcement in July, Coors’ shares have fallen 10% while Molson’s have fallen by 9%.