Let’s say two companies are involved in a joint venture that’s been an unhappy marriage. The relationship isn’t as toxic as the former partnership between Mel Gibson and Oksana Grigorieva, but it hasn’t been a day at the beach, either. Neither partner wants to remain in the business alliance; they’re both looking for a dignified exit.
With logic and reason as your guides, what would you expect their next moves to be?
Yes, one partner might approach the other, looking to sell its interest in full. It’s also possible that one company might sell its interest to an approved third party, offering a right of first refusal to its JV partner. It’s also conceivable that both partners would put the joint venture on the block, hiring an agent to discreet present it to private-equity shops and strategic buyers. They might even consider putting some lipstick on the pig and trying an IPO, hoping to benefit from auspicious timing and favorable lighting.
Okay, now throw logic and reason to the wind. What would you do now?
Maybe, as Nokia and Siemens have done at Nokia Siemens Networks (NSN), you’d compound the unhappy union by acquiring a floundering telecommunications-equipment business from a vendor eager to unload it. Misery loves company, after all, so why not plunge headlong into the pit of despair? If you put on your absurdist bifocals, the move just might make sense on a surreal existential level. But we’re talking business, not Dadaism.
Just when I think there’s nothing in this crazy industry that can surprise me, something does just that. I admit, I’ve been puzzling over why NSN would buy Motorola’s networks business, which retains some wireless-operator customers, especially in North America, but also carries hefty baggage in the form of a product portfolio predicated on technologies (a large portion of its 3G gear, and its WiMAX 4G offerings) that have gone out of fashion. NSN will pay $1.2 billion for the Motorola unit, and — other than some modest scale and a minor ostensible market-share gain — I don’t see how it derives much benefit from the transaction.
Squeezed from all angles, from traditional competitors Ericsson and Alcatel-Lucent and from hard-charging Huawei — when it’s not fighting an intellectual-property lawsuit launched by, of all vendors, Motorola — NSN isn’t a thriving business. As I have mentioned previously, its joint-venture partners have taken massive goodwill writedowns since forming the business back in 2007.
Digressing for a moment, I want to note that I am not a proponent of joint ventures. Many European companies seem favorably disposed to them, and I understand the underlying reasoning behind them: pool resources, share and mitigate risk, eliminate distraction to one’s core business. Unfortunately, they’re usually unworkable in practice. It’s hard enough getting people from the same company to agree on strategy and to execute successfully. When you have the political machinations inherent in a joint venture, well, the job becomes nearly impossible.
Getting back on track after that brief digressive detour, NSN is in a tough spot.
How tough became clear to me after I read an article in the Wall Street Journal yesterday. Neither Nokia nor Siemens wants to continue participating in the joint venture, but they can’t find a way out. It’s as if Jean-Paul Sartre has rewritten No Exit and staged it in a boardroom. Hell is having to deal with other people in a joint venture.