1、Joint Venture Exit ClausesVenturing OutWhen partnerships sink, companies with solid exit strategies can avoid major grief.US Airways was shocked when British Airways-its partner in a critical transatlantic joint-service arrangement- created a second major alliance with US Airways rival American Airl
2、ines. Having given up its own U.K. routes when it signed on with British Airways three years earlier, Arlington, Virginia-based US Airways had to patch together an alternative strategy after breaking off the partnership. It quickly began seeking permission to serve London again on its own. A similar
3、 jolt hit Murray Hill, New Jersey based Lucent Technologies Inc. last year, when a promising venture with Dutch giant Philips Electronics NV failed to take the U.S. digital mobile-phone market by storm, as the partners had expected it would. Pulling the plug on the 18-month-old pact left Lucent with
4、 large write- offs, bad PR from the finger-pointing that had gone on between the companies, and a hasty decision to abandon the domestic digital-phone business altogether. Call it the Titanic syndrome. Optimistic executives launch a joint venture and view their carefully crafted enterprise as unsink
5、able, then give little thought to such uncomfortable details as how many lifeboats to take along, or what course to set if they survive an iceberg hit. Whats needed is a formal exit strategy, envisioning various possibilities for a rational, perhaps even profitable, divorce. Companies with experienc
6、e in planning for a joint ventures end recommend careful analysis of alternative valuation scenarios, lots of contingency planning-and making the finance chief master of the cold, hard realities. “Business leaders sometimes fall victim to the enthusiasm of euphoria,“ says Robert Agate, the recently
7、retired CFO of Colgate-Palmolive Co., who arranged numerous global alliances during his 35-year tenure (9 as CFO) at the New Yorkbased consumer-products concern. Part of the problem, he suggests, is that joint ventures are so often portrayed as routine. “Its such a common topic, with people always s
8、aying that there have to be more and more of them. But in reality, they are very difficult to pull off successfully,“ Agate says. “Prudence, and the history of joint ventures dissolving, dictate that youve got to spend a lot of time thinking about how this thing could end,“ adds Case Corp. CFO Ted F
9、rench, who describes ventures as “love fests by their very nature.“ Much of the problem, he says, arises when operations executives are charged with planning the terms, without any critical oversight. “Operating people have a very hard time with the divorce issue. It takes somebody to step back and
10、have perspective,“ according to French. A Question of Value“It really is a CFO issue,“ says David Ernst, a Washington, D.C.-based partner at consulting firm McKinsey a standard exit clause may contain a basic outline for one partner or another to sell its share or buy out the others stake under thes
11、e circumstances. But this approach “doesnt go nearly far enough toward understanding the acceptable range of exit outcomes.“ Among the other significant developments that could trigger a breakup, Ernst lists changes in the marketplace or in the regulatory environment. Thats why he often suggests tha
12、t clients prepare contingency business strategies for the end of a venture, or seek alternate access to components that might now come from a venture, for example. And such visions of an unpredictable world require a good blend of precision and flexibility in the language used to set out terms for a
13、n arrangements conclusion. “Things change. And you cant possibly think of everything when you start a joint venture,“ says Mickey Foret, CFO of Minneapolis-based Northwest Airlines, which recently restructured its own long-term partnership with KLM Royal Dutch Airline. Hold that TrademarkAgate, the
14、retired Colgate-Palmolive CFO, says Colgate has traditionally made sure its joint- venture contracts specify that intellectual- property rights will be properly returned to their corporate owners if a joint venture ends. “A venture is fine if it goes till the end of time,“ he says. “But if you have
15、to break it off, you dont want a third party using Colgate trademarks, for example.“ So provisions are written into new ventures allowing for the return of certain rights-and also allowing the company contributing the trademark to take it back during the venture, for a price. It works both ways in C
16、olgate ventures. Often, a foreign company wants Colgate to contribute its marketing skills to build up a regional product name. In one case, because of the way the exit terms were written, Colgate “ended up with a lump sum because the other side wanted to extricate itself from the venture,“ says Aga
17、te. “If you are a company like Colgate, and youre in a country where there is a good trademark and good market share, and the country wants your global support, you have to have some formulas whereby either party can negotiate its way out if circumstances change.“ PARTIAL DOCUMENT THE REMAINDER IS VIEWABLE BY THE MEMBERS ONLY
