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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Two Indian firms, Ravi Pharma and Meera Labs, decide to jointly develop a vaccine. They form a separate legal company in which each holds 50% equity and shares management. Which type of strategic alternative is this?

This is a joint venture, a cooperative strategy. Two independent firms create a new jointly owned company, sharing equity, management and risk for a specific project, while both parents continue to exist. It is not a merger, takeover or divestment because no firm is absorbed or sold.

  1. AJoint venture, a form of cooperative strategyCorrect
  2. BHorizontal merger
  3. CHostile takeover
  4. DDivestment through spin-off

Explanation

Two independent firms creating a new jointly owned entity to pursue a shared project is a joint venture. Both parent firms continue to exist, so it is not a merger, and no control is acquired against management wishes, so it is not a takeover. Nothing is being sold off or separated, so it is not a divestment.

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