NEW YORK (TheStreet) - A wave of joint venture deals that came to a head last week reveals that companies taking control of partnerships are getting in at the bottom, which could translate to a big upside for their shareholders.
Last week, the Dow Jones Industrial Average rose above 12,000 for the first time since early August as government debt fears and bank solvency gripped markets. This week, fears re-emerged when MF Global's (MF) bankruptcy and a Greek bailout referendum jilted markets.
Emblematic of seesawing fear and greed in markets, joint venture partnership buyouts are being negotiated between sellers and interested buyers.
In October, Sony (SNE) bought its mobile handset venture with Sweden's Ericsson (ERIC), United Technologies (UTX) took control of a jet engine making duo with Rolls Royce, Peabody Energy (BTU) got control of its coal to steel partnership with Indian steel giant Arcelor Mittal (MT) to buy Australian Macarthur Coal, Teva Pharmaceuticals (TEVA) took on a Japanese J.V. and a Johnson Controls (JCI) acquired its French battery-making venture.For those like Peabody, Sony and Teva taking control of partnerships, the timing may be impeccable if last week's rally is a better economic signal than this week's fear. It's also a sign that quick-strike deals may be more opportunistic than company takeovers. In October, United Technologies' (UTX) jet engine division Pratt & Whitney bought out a $1.5 billion joint venture with Rolls-Royce, ending a partnership to build V2500 jet engines. The deal may be a signal of opportunistic partnership buyouts. "I think the larger companies can potentially take advantage of these situations and opportunistically buyout their partnership. Clearly it was part of the mandate of United Technologies in buying out the partnership of Rolls Royce," said Russell Solomon an analyst with Moody's (MCO). Solomon says that both firms entered the partnership to pool funds and expertise to develop engine designs without taking on too much financial risk. He added, "At a certain point invariably someone wants to take a controlling stake" once designs are successfully developed. Signaling confidence in future orders, the aircraft engine giants also announced a multi-decade joint venture to make mid-sized 120-230 passenger plane engines. "In this market, if you are sitting on a lot of cash, there are a lot of opportunities out there. What makes joint ventures interesting is that the degree of due diligence you need to do is substantially less than a merger and acquisition," said Peter Bible a partner at advisory firm EisnerAmper in a phone interview. For companies like Sony, Teva or Johnson Controls taking control of a previous venture, buyouts might be a quickly executable bet on growth or a market opportunity.
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