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Companies Bolting Joint Ventures

Sony bought Ericsson's 50% stake in their Sony Ericsson mobile phone venture for $1.5 billion on Thursday in cash, ends a partnership started in 2001 that created the world's sixth largest mobile phone maker. The deal allows Sony to integrate smartphones into its line-up of network-connected consumer electronics devices and is also a signal of where the company sees opportunity - principally competing against Apple (AAPL - Get Report) and Samsung in smartphone and tablet sales. Of his strategy in the deal, Sony chief executive Sir Howard Stringer said, "We can more rapidly and more widely offer consumers smartphones, laptops, tablets and televisions that seamlessly connect with one another and open up new worlds of online entertainment."

About joint venture buyouts, Bible of EisnerAmper added that because deals can get done quickly, they may be a leading indicator for larger mergers and acquisitions, which are recovering with deals like Kinder Morgan's (KMI - Get Report) $21.3 billion purchase of El Paso (EP). "My personal view, I think were probably a good year away from some level of confidence for both producers and consumers in the economy that will lead us to more normal times," said Bible.

Clued in company watchers found last Monday's announcement that Peabody Energy would assume 100% of a previously shared $4.7 billion partnership to buy coal miner Macarthur with ArcelorMittal as a stunning reversal from days earlier when the venture looked complete. "I was definitely surprised. I didn't see that Arcelor would drop out," said Meredith Bandy an analyst at BMO Capital Markets (BMO - Get Report). Bandy added about the deal, "at current rates of production it's a very full price that they are paying. Long term at Macarthur you are looking at 9 million tons of [annual coal extraction] or more, so if you are able to achieve that growth then they are not overpaying." The idea is that the Macarthur coal takeover is sensitive to the amount of coal the company can extract and its selling price. Expected extraction tonnage and selling prices are contingent on global economic demand and a stem in the tide of economic and market deterioration in recent months.

Mittal said in its walk away that the price of the partnership "exceeds what is appropriate to allocate to a business that ArcelorMittal does not fully control." It's a signal that though Mittal absented a 50-50 bet on coal production and prices, putting a partner in all hands on the deck, they too might jump into deals.

For ventures suffering from falling commodity prices, today's still confidence lacking market may be a deterrent. For instance, natural gas prices are still well below levels earlier in the year. "In general I would say that many gassy [exploration & production companies] have JV's that they might not be interesting in selling a remaining interest in given depressed [natural gas] prices," said David Deckelbaum and analyst at KeyBanc Capital Markets in an email. Deckelbaum added however, "there might be a chance, particularly in the Bakken Shale to consolidate minority interests." Earlier this year, in the Eagle Ford shale, KKR (KKR) sold its shale joint venture with Hilcorp Energy for $3.5 billion to Marathon Oil (MRO), and a year earlier, the company sold a J.V. called East Resources to Royal Dutch Shell (RDS) for $4.7 billion. Signaling that recent mergers like Statoil $4.4 billion purchase of shale driller Brigham Exploration (BEXP) might also reflect partnership buyouts.
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