NOTwhere the company is an island. Everyone goes on strike and enters into competition with the others. Conversely, when bosses decide that a particular relationship would be better governed by fiat, one company can acquire another. Between these poles, companies have many ways to combine capital, knowledge or other resources, without completely marrying each other.
Such intermediary arrangements are gaining favor across the economy, from technology to artificial intelligence (AI) to automobiles and energy. While company takeovers have stalled in 2023, the number of joint ventures (Joint ventures) and partnerships jumped 40%, according to Ankura, a consulting firm. They are particularly popular in regions where technological change is rapid and in places prone to protectionism, which today affects both rich and poor countries. As trade barriers mount, high interest rates continue to weigh, and regulators balk at taking control, such linkages are becoming the preferred means of expanding a business empire, as recent stocks of companies such as Disney, Ford and Microsoft. Let’s call this the near-merger era.
When the scope of cooperation is clear, companies often choose to share ownership of a separate entity through a Joint venture. In February, Disney announced a new sports streaming service bringing together its own ESPN network with content from two entertainment rivals, Fox and Warner Bros. Discovery. A few weeks later, it announced a similar move in India, partnering with Reliance, one of India’s largest conglomerates, in an $8.5 billion deal.
Many recent constructions are more vague. Microsoft has established partnerships with the largest manufacturers of AI Models: OpenAI from San Francisco, the Mistral from Paris and, this month, g42 from Abu Dhabi. Investments by the world’s most valuable company will give it minority stakes in Mistral and g42. After saving OpenAI to the tune of 13 billion dollars, it holds a minority stake in ChatGoogle Tag-for-profit subsidiary of Maker. Last February, Ford, an American automobile manufacturer, announced a partnership with CATL, a Chinese battery giant, to build a $3.5 billion battery factory in Michigan. The Chinese company would provide its know-how via a licensing agreement, but would not hold a stake in the project. If America succeeds in forcing TikTok’s Chinese owner, ByteDance, to sell the social media app or face a ban in the United States, it would likely end up in the hands of a consortium of American companies.
Quasi-mergers are nothing new. Companies have long partnered to manage project costs, new technologies and governments obsessed with manufacturing. This year, France’s Renault and Japan’s Nissan are celebrating a quarter century of the industry’s largest alliance, which Mitsubishi, another Japanese company, joined in 2016. PCM International, which is jointly owned by GE American manufacturer Aerospace and French Safran have been making aircraft engines since the 1970s. In the 1990s, notes Melissa Schilling of New York University, the companies rushed to form new partnerships to capitalize on the new technology of the time: the Internet. Developing countries, including China, have long forced foreign companies seeking to take advantage of cheap labor and large markets to transmit their technologies through Joint ventures with local partners.
Goodbye blockages. Hello teams
Today’s more complex world leads to more complicated arrangements. One of the hot spots is, once again, automobile manufacturing. The industry is being reshaped by the shift from combustion engines to electric vehicles (VEs) – and by fears of deindustrialization while Chinese car manufacturers dominate the market. Last October Stellantis, born from the merger in 2021 of Fiat Chrysler and Message of public interest Group, owner of Peugeot and Citroën, announced the purchase of 20% of Leapmotor and the creation of a Joint venture build and sell the Chinese VE-cars from manufacturer abroad. (Stellantis’ largest shareholder also owns part The Economist(parent company of .) The following month, Renault and Nissan ratified a new, more flexible agreement with more equal cross-shareholdings. In March, Nissan and Honda, another Japanese rival, announced they were exploring a strategic partnership to develop VEs.
Most new auto manufacturing companies aren’t aimed at making cars – at least not directly. Last year, Stellantis bought nearly 20% of McEwen Copper, a small miner, in a deal (which also involves Rio Tinto, a giant) to mine the red metal in Argentina. That copper could eventually make its way to Kokomo, Indiana, where Stellantis owns 49% of the two battery factories under construction with Samsung. IDS, a South Korean battery company partly owned by the electronics giant of the same name. Stellantis is also part of IONNAA Joint venture among seven automakers planning to build 30,000 charging stations in America.
The titans of digital technology are building equally complex networks of cooperation. Unlike agreements between forest car manufacturers, where the main reason for limited cooperation is to share costs, the AI The deals have more to do with antitrust authorities’ belief that big tech is already too big. In March, Amazon announced it had invested $4 billion in Anthropic, securing access to its Claude 3 model for its customers and crowning itself the model maker’s “leading cloud provider for mission-critical workloads.” Alphabet promised Anthropic up to $2 billion and also touted the startup using its cloud infrastructure.
Microsoft, AIThe country’s most ambitious negotiator is well aware of the dangers posed by more cumbersome red tape. Its full acquisition of Activision Blizzard, a video game developer, took nearly two years and was nearly derailed by trustbusters. The software giant started working with OpenAI in 2016; 13 billion dollars later and it integrates OpenAIin its consumer and enterprise products. In the shadow of the turmoil at the startup, which in November led to the rapid firing and rehiring of its boss, Sam Altman, Microsoft has begun to expand its bets.
The $16 million investment in Mistral, announced in February, may be small, but it helps give France the best chance of becoming a AI superpower in Microsoft’s orbit. Even more creatively, in March, Microsoft stunned the tech world with a “no deal” deal under which top executives at Inflection AIanother modeler, decamped to Microsoft. The startup’s other investors would be compensated through an unusual licensing agreement. (One of Inflection’s founders serves on the board of directors of The Economist(Microsoft’s parent company.) Microsoft’s $1.5 billion g42 The transaction is half partnership and half high-stakes diplomacy – the agreement came in the hope of closer cooperation on AI between the US and UAE governments.
The success of the quasi-merger wave is difficult to predict. Although alliances escape regulators and politicians more easily than takeovers, they can still fail. Last year, American Airlines and JetBlue, another carrier, ended their alliance on the US East Coast after being sued by the Justice Department. Disney’s new sports venture is facing intense scrutiny from antitrust arbiters. Earlier this year, the Federal Trade Commission, another US antitrust agency, opened an investigation into the AI offers. European and British regulators are making similar noises.
Cross-border transactions, in particular, take a narrow path. Teaming up in emerging economies has always required careful management, lest politically connected local companies turn on their foreign partners or an entire jurisdiction become uninvestable. The abandonment of the free market in the West has, to some extent, globalized this political uncertainty. The flexibility inherent in a partnership or Joint venture but the absence of a complete takeover could make such structures more politically acceptable. But even deals designed to avoid triggering tensions can face increased scrutiny. Although CATLFord’s partnership with Ford does not involve an equity investment by the Chinese company, which has not stopped US lawmakers from calling for careful review of the deal.
Partners pose perhaps the greatest threat to new partnerships. Aligning business incentives is notoriously tricky. Crucial details of quasi-mergers are kept secret, giving shareholders little information about what bosses actually agreed to.
It’s no wonder disputes cost ten cents. In March, a U.S. judge ruled that Walmart could end its partnership with Capital One after the supermarket and the credit card provider argued over the terms of their deal. A difficult game of linguistic chess has the oil industry on the edge of its seat. ExxonMobil is at war with Hess, a smaller rival, over what should happen to their Joint venture in Guyana, if Hess sells to Chevron, the American supermajor rival of Exxon.
A global slowdown VE sales will put pressure on automakers’ new builds (Ford has already scaled back plans for its Michigan battery plant). Being a new technology, AI raises new questions on topics such as security or copyright that do not necessarily lend themselves to shared decision-making. Near-mergers are here to stay. Many may turn out to be only a near success. ■
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News Source : www.economist.com
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