This is an entanglement.

A complicated corporate relationship status connotes minority acquisitions (taking less than 50% stakes) in other companies, while the long-term purpose of stake-building often remains unclear.

In 2008, Dangote Group, Nigeria’s leading industrial conglomerate, acquired initial stake of 19.76% (for R350 million of equity funding) in Sephaku Cement, a leading cement manufacturer in South Africa.

On August 11, 2005, Yahoo! announced it would pay $1 billion in cash and hand over its China operations to Alibaba.com, China’s e-commerce giant company, in exchange for 40% stake in Alibaba. The deal would also give Yahoo! 35% voting rights in Alibaba.com, making it the largest strategic investor in its Chinese partner. In return, Alibaba would win the exclusive right to use and grow the Yahoo! brand in China.

A more complicated relationship occurred on August 6, 1997, when Microsoft invested $150 million in non-voting Apple stock. The investment served as the lifeline for Apple’s survival at that period. Yet, then and now, the two companies have been rivals.

Also, on October 24, 2007, Microsoft acquired 1.6% stake in Facebook for $240 million. This acquisition came after Zuckerberg frustrated Microsoft’s initial plan for outright acquisition of Facebook. The small stake also served as lifeline for Facebook’s survival.

Why all these minority stakes? The answer is simple – it is complicated.

Acquiring minority stakes in a company is a notable corporate practice. Such acquisitions may be for strategic or purely financial investment. And sometimes, it is just complicated, pure and simple. Because no one really knows why.

·         Strategic Investment

Strategic investment is one of the two broad methods of investing in the financial world. The first method involves investment in a company by an individual or another company with the goal of generating safe, steady returns. The goal is different with strategic investment.

According to The Business Professor, the idea behind strategic investment is to leverage the invested business, to boost the investor’s market standing. More than the profits, a strategic investor wants access to the invested business’s technology, ideas, services, or products, to enhance their own business model.


The Toyota production system

Charles W. L. Hill, Melissa A. Schilling and Gareth R. Jones write in their book, Strategic Management: An Integrated Approach, Theory & Cases, 12e, that in contrast to American practice, Toyota decided, in the 1950s, that, while it would increase in-house capacity for essential subassemblies and bodies, it would do better to contract out for most components.

Four reasons seemed to bolster this strategy:

1.       Toyota wanted to avoid the capital expenditures required to expand capacity to manufacture a wide variety of components.

2.       It wanted to reduce risk by maintaining a low factory capacity in the event that factory sales slumped.

3.      It wanted to take advantage of the lower wage scales in smaller firms.

4.      Toyota managers realised that in-house manufacturing offered few benefits if it was possible to find stable, high-quality, low-cost external sources of component supply.

They write that as Toyota evolved during the 1950s and 1960s, its strategy toward its suppliers had several elements. The company spun off some of its in-house supply operations into quasi-independent entities in which it took a minority stake, typically holding between 20 and 40% of the stock. It then recruited a number of independent companies with a view to establishing a long-term relationship with them for the supply of critical components. Toyota took a minority stake in these companies as well.

The consequences of Toyota’s production system included a surge in labour productivity, a decline in the number of defects per car, and having the greatest number of vehicles produced per worker when compared to those at General Motors, Ford and Nissan between 1965 and 1983.

Taking minority stakes in a company as a form of strategic investment is employed for several reasons, which may not be readily obvious.

Outsourcing R&D

Acquiring minority stakes can be used for outsourcing research and development (R&D) from other companies. An article in Inc. explains R&D is used for obtaining new knowledge applicable to your business’s needs, which eventually results in new or improved products, processes, systems, or services that can increase your business’s sales and profits. R&D can be conducted in-house, under contract, or jointly with others.

GSK held 18% in Convergence Pharmaceuticals

In life sciences industry, GlaxoSmithKline (GSK) spun out a group of scientists and patents involved in experimental drugs for analgesics in 2010, write Faelten et al. GSK kept 18% of the new business, called Convergence Pharmaceuticals. In this case, the deal was seemingly designed to cut overheads in R&D for GSK, boost productivity at the new company and still leave GSK with “skin in the game”.

According to Hill et al., although outsourcing non-core activities has many benefits, there are also risks associated with it, such as holdup and the possible loss of important information when an activity is outsourced.

In the context of outsourcing, they explain, holdup refers to the risk of your company becoming too dependent upon the specialist provider of an outsourced activity and the specialist using this fact to raise prices beyond some previously agreed-upon rate. However, the risk of holdup can be reduced by outsourcing to several suppliers and pursuing a parallel sourcing policy.

As regards the risk of loss of important competitive information and forfeited learning opportunities, they write that ensuring there is appropriate communication between the outsourcing specialist and your company can be effective in mitigating the risk. At Dell, for example, a great deal of attention is paid to making sure that the specialist responsible for providing technical support and onsite maintenance collects and communicates all relevant data regarding product failures and other problems to Dell, so that Dell can design better products.

Access to greater information

Minority acquisitions can facilitate access to greater information about a target, allowing the acquiring company to better assess the value of the target and expected synergies before committing to purchasing a majority stake in the target. This is particularly common where uncertainty surrounds expected result from a full-blown merger.

In this instance, the holder of minority stakes gets the opportunity to monitor the target firm and participate in its management.


Malcolm glazer acquired Manchester United

Faelten et al. write that in 2003, Manchester United was one of the most successful football teams in Europe with a history that gave the club a uniquely popular global fan base. It was a time when a number of outside investors saw the UK football market as an attractive investment for either prestige or money.

As the strategy to acquire Man United, Malcolm Glazer swept the market for available shares of the company and started purchasing them. By November 2004, he had acquired 28% stake of the company’s shares. He then demanded and received three board seats in the company.

At this stage, Mr. Glazer realised that in order to acquire majority stakes in the company, he had to find a way to buy the 29% stake belonging to the second biggest shareholder of the company, Cubic Expression. Combining his stake with Cubic’s would give him more than 50% of the club – certainly enough for control and also sizeable enough to try to force out small investors.

In May 2005, Mr. Glazer finally secured Cubic’s stake, giving them a majority of the company’s shares. Only at this point – confident that they could squeeze out the remaining shareholders as would be possible under UK takeover regulations – did the Glazer family launch a formal bid for Man United.

Mr. Glazer bought United for £790 million in a highly leveraged deal by putting in £270 million of their own cash (34% of the borrowed money).

READ ALSO: Salami Tactic in Negotiation: How Malcolm Glazer Acquired Manchester United

Expanding into foreign market

Minority acquisition can also be used as a scout before extending your tentacles across foreign markets. Like Warren Buffett advises, do not test the depth of the river with both your feet while taking a risk. And a foreign market river may be far deeper than the ocean.

Expanding into a new geographic location is challenging in various aspects. For you to operate effectively, you need local relationships, not only with customers but also with suppliers, partners, regulators, and a host of other parties. A bigger challenge is understanding and operating within a new local culture. As a result, taking a minority stake in your potential target helps you to better assess those challenges, and minimise risks.

Yahoo!-Alibaba deal

Recounting what went down with Yahoo! minority stake in Alibaba and reasons for the success of the investment, Sue Decker, Yahoo! President at the time, writes in an article in Harvard Business Review that, “A second critical principle that contributed to our success in China was the realisation that we had to be willing to loosen the reins of control. This runs counter to the behaviour of most corporations and counter to our earlier attempts. In the media and internet industries, it turns out to be very important when operating in China.

“So with Alibaba, we realised we needed to be willing to give up all operating control. Practically speaking, this meant forgoing our previous desire to own more than 50% of the local operations. It also meant we would leave all employee issues to our partner and allow our code to be used by people with no previous connection to the company. Scary.”


Risks attached to expanding into an international market include operating, valuation and integration risks. Majority acquisition effectively transfers majority control to the acquirer, along with the primary incentive and responsibility to manage and operate the target company. On the other hand, not assuming primary responsibility for operations of the target company through minority acquisition shields the minority acquirer from operating risks arising out of liability of foreignness.

Furthermore, access to more information about the target company through minority acquisition gives the minority acquirer strategic advantage over other bidders. You are able to determine better and more quickly the correct value of the target, and you are aware of the various issues to be ironed out in the due diligence process. Valuation risks are therefore better managed through the minority acquisition.

Integration risks associated with post-acquisition can also be mitigated by acquiring minority stakes. When you learn about the target, you identify potential bottlenecks to post-acquisition integration. You will be able to identify key managers with essential knowledge of the target company, the local market linkages that you must retain, and other factors that you must incorporate in your post-acquisition plans.

After considering all these challenges and risks, and you observe that the market or the target company is unattractive, and therefore decide to exit, the lower commitment through minority acquisition helps to reduce the costs and risks of exit.

What happened to Dangote’s 19.76% stake in Sephaku Cement (Pty) Limited

After acquiring 19.76% in Sephaku Cement, by October 15, 2010, Dangote Industries Limited increased its stake in Sephaku Cement to 64% for R779 million. The further investment follows the initial R350 million of equity funding concluded in March 2008, bringing the total investment to R1.129 billion. The transaction was reported to be the largest ever foreign direct investment (FDI) by an African company into South Africa.


What happened to Yahoo!’s 40% stake in Alibaba

Following years of assumptions, by September 2012, Yahoo! completed the sale of as much as half of its 40% stake (523 million shares) in Alibaba for $7.6 billion after a series of negotiations, through a buyback. The deal, which contained a payment of $7.1 billion in cash and stock, and another $550 million paid to Yahoo! under a revised technology and patent licencing agreement with Alibaba, would provide a much-needed cash injection for Yahoo at that time.

CBS News reports that, “Struggling internet Yahoo! Inc.  has secured a lifeline after agreeing to sell half of its prized stake in Chinese e-commerce group Alibaba for about $7.1 billion, with most of the cash going to shareholders.”

The Guardian reports that the deal would generate “a windfall that could help ease the pain of Yahoo! shareholders who have endured the company’s foibles during the past few years.”

Commenting on the deal, Marissa Mayer, Yahoo! President and CEO at the time said, “This yields a substantial return for investors, while retaining a meaningful amount of capital within the company to invest in future growth.”


·         Pure Financial Investment

Berkshire Hathaway minority holdings

Berkshire Hathaway Inc., an American multinational conglomerate holding company, has minority holdings in several companies. 10 notable companies among them include:


Ownership %

1.       American Express


2.       Apple


3.      Bank of America


4.      Bank of New York Mellon


5.      Coca-Cola


6.      Delta Airlines


7.      J.P. Morgan Chase


8.      Moody’s


9.      U.S. Bancorp


10.   Wells Fargo



These minority holdings serve as financial investment vehicles for Berkshire Hathaway’s shareholders, generating and maximising their financial returns periodically.

“It is certain that Berkshire’s rewards from these 10 companies as well as those from our many other equity holdings, will manifest themselves in a highly irregular manner. Periodically, there will be losses, sometimes company-specific, sometimes linked to stock-market swoons. At other times – last year was one of those – our gain will be outsized,” Warren Buffett, the chairman and CEO of Berkshire Hathaway, writes in his 2020 letter to the company’s shareholders.


Taking minority stake in a company purely to generate financial returns is a usual business practice. This practice is common among private equity firms, venture capital firms, sovereign wealth funds, hedge funds, family offices, and high net worth individuals.

·         It is Just Complicated

Microsoft investments in Facebook and Apple

After Microsoft’s failed attempt to buy Facebook, Microsoft reached an agreement for $240 million cash injection into Facebook (1.6% stake) that allowed Zuckerberg to keep control of the business. Under the terms of the agreement, Microsoft would be the exclusive advertising platform for Facebook. The motivation for the minority acquisition came after intense competition between Microsoft and Google for a stake in Facebook. Microsoft won the race to invest in Facebook against Google, even if that effort was costly.

Microsoft’s 4.5% minority acquisition in Apple was needed because, ironically, Microsoft did not want to lose Apple, its competitor. Microsoft believed if it were to lose yet another competitor, the US government would come down harder on its own dominant position in software. The investment was a result of the strong disposition of the US to antitrust law in the country.

The terms of the deal contained agreement between the two companies to settle all outstanding litigation and cross-license patents, while making Microsoft Office available for the Macintosh, and making Internet Explorer the default browser – but not the only one – on the Mac.


Acquiring minority stakes in another company is a complicated corporate status. Because the motivation for such relationship may be for a different million reasons. Often, all we are left with are speculations, while waiting for time to tell.