Applying real options analysis to value the GM-Fiat strategic joint venture
by Octavian Ionici, Kenneth Small, Steve Kramer
International Journal of Applied Decision Sciences (IJADS), Vol. 2, No. 4, 2009

Abstract: GM and Fiat entered a strategic joint venture (JV) in 2000 that lasted only five years, but set the stage for the resulting meteoric rise of Fiat, who in 2009 acquired Chrysler to become the second largest automobile producer in Europe. We apply real options analysis to value the strategic alliance between GM and Fiat and show how options, in this case a put option, can be used as currency when strong bargaining power exists. We also highlight some of the problems related to the inherent flexibility embedded in the GM-Fiat agreement. As a result, we suggest the need to create a customised model which mitigates the conflict between the conclusion of strategic analysis and the real option approach. Insights from options-based analyses should improve not only the estimates of asset value, but also the decision-making process. Like an engaged couple that never make it to the altar, correctly pricing the strategic options embedded in a JV contract will save money, time and missed opportunities.

Online publication date: Sun, 24-Jan-2010

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Applied Decision Sciences (IJADS):
Login with your Inderscience username and password:

    Username:        Password:         

Forgotten your password?


Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com