WORKSHOP - Creation of a Joint Venture

General Instructions

You need to review the section in the Text dealing with Strategic Alliances, It will
also be helpful to review the section on licensing in the same Chapter.

The Joint Venture you will negotiate actually occurred and was completed in
1982 between a Canadian and Japanese company.

You need to divide yourselves into groups of 6 (one group may have an odd
number because of the actual class size). Half of your group will represent the
Canadian side the other half the Japanese side. For your information the actual
negotiations were intense and often protracted however in the end a “Win-Win”
deal was struck. The business continues to exist today albeit in a different form.

Each side of each group should spend 25 minutes determining their strategy
before the negotiating session begins. Then the two parties should get together
(select a corner of the room where you can achieve maximum privacy). Spend 40
minutes attempting to agree on a structure and operating method for the JV.
Appoint one person (from either side) to take notes of the items agreed upon.
This person will also present your conclusions to the class.

The last 40 minutes will be spent by each group’s nominee presenting to the
class the agreement you have achieved. On completion of the last presentation a
discussion will take place as to the relative merits of each group’s agreement.

Pay special attention to the legal aspects of your agreement and assume that
“what could go wrong, will go wrong”
 WORKSHOP - Creation of a Joint Venture

THE NEGOTIATING PARTIES

ALUMA SYSTEMS INCORPORATED

Founded in 1971, ALUMA SYSTEMS INCORPORATED (Aluma) was a Joint Venture between
the ALUMINUM COMPANY OF CANADA LTD. (Alcan) and TRIDEL ENTERPRISES (Tridel)
Canada’s largest builder of high rise condominiums.

Aluma designed and developed a revolutionary new system for the “forming and shoring” of
poured in place concrete.

Numerous Patents were applied for as well as Trademarks registered in many countries including
Japan.

The company achieved enormous marketing success in Canada, the United States, Europe,
South America and is now looking for a way to enter the Japanese market which is experiencing
unprecedented growth in all phases of the construction industry.

NIPPON LIGHT METAL COMPANY LTD.

The NIPPON LIGHT METAL COMPANY LTD. (NLM) is Japan’s largest fully integrated aluminium
company. NLM produces raw ingot in it’s smelters and extrusions, bar, plate, castings, foil etc. in
it’s factories. It also fosters many down stream businesses. For example NLM is Japan’s largest
producer of aluminium beverage cans and auto parts, being the world’s largest producer of
alloyed automobile wheels.

NLM is owned 45% by Alcan. When executives from NLM were visiting Alcan’s extrusion works in
Kingston, Ontario they noticed large quantities of rather large extrusions on the factory floor. They
inquired as to what these extrusions were used for and who was Alcan’s customer.

Before leaving Canada the NLM executives paid a visit to the Toronto offices of Aluma to enquire
as to whether or not there might be a way of working together in Japan.

Although Aluma had done some market research on the Japanese market they had not found a
suitable way to enter the market. Since Aluma had no representation in Japan the wheels were
set in motion which led to the Joint Venture.

NIKKEI ALUMA SYSTEMS COMPANY LTD.

NIKKEI ALUMA SYSTEMS COMPANY LTD. (Nikkei) came into being on July 27, 1982 after
3 years of tortuous, frustrating and exasperating negotiations. Talks didn’t even begin in earnest
until the NLM engineers, marketers and accountants were absolutely certain that a profitable
business could be established. It was often said that the Japanese were simply “wearing down”
the Canadians in order to get the most favourable deal when it came time to negotiate.
 WORKSHOP - Creation of a Joint Venture

ISSUES

Control - who has it ? This is supposed to be 50/50 Japanese Commercial Law in effect in
1982 (NCC) precludes a Foreign Joint Venture partner from having 50% equity (or more)
therefore the Japanese must have at least 51% How do you make this a 50/50 relationship ?

What is the term or life of the JV ?

Distribution of earnings - assuming there are earnings how and when should they be disbursed ?

Directors….how many and from what side ??

Management….who appoints and what are they allowed to do without Board approval /
More importantly what is management not allowed to do without Board approval ?

Share Capital - how shall we structure it ?

Auditors - how shall we choose ?

Fiscal year end - how shall we choose ?

Funding - how will the JV be provided with working capital ?

Who and how does third party funding get guaranteed ?

Licensing of Intellectual Property…..how to structure ? who pays ? what term ?

Restrictions of transfer in the event one party wishes to sell it’s shares.

Right of first refusal (if one party receives an offer of purchase)

Buy - Sell provisions (if one party wants to buy the other out)

Dissolution (how to wind up)

Deadlock (if the parties can’t agree)

Arbitration (when and where)

At what price does Aluma sell to the JV ?

At what price does NLM sell to the JV ?

At what price can the JV buy on the open market ?