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Thread: Businesses owning shares in their competition

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    Default Businesses owning shares in their competition

    I've been doing some research into some of the businesses in my city, and I came across the concept of cross sharing, and particularly businesses owning shares in their competition. This got me curious:

    Under what circumstances would a business want to do this? What would be the effect? Would the owners of the one business want to see their competition thriving? What would be the dynamics between them?

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    The idea of cross sharing is new to me. I tried searching for it, but couldn't find any information. Could you offer more details about how it works?

    Unless a business is a public company or specifically seeks investors, I don't how another business could invest in it so I assume these businesses are really partnering with each other. It would be similar to becoming partners I suppose. Instead of focusing on beating their competitors, they can all focus on generating more business that they share in.

    Whatever industry they're all in probably has enough customers to support multiple businesses and by investing in each other, they likely keep additional competition out of the market. Maybe it's a case where the existing businesses are willing to divide the pie between them so that no one else can sit down at the table to have pie at all.
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    The only way for a business to own shares of another, is for the other business to be publicly traded. I am also wondering how you found what businesses were invested in. Such information is not generally public.

    Now, it would not be unusual for business to invest their idle cash in index funds. If those index funds were based on their market segment they would effectively be buying shares of their competitors stock. This is not really an investment in the competition, but a means of earning a little extra interest on their cash.
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    The closest real world example that I can relate to this is leading up to the financial meltdown, investment companies and banks put clients in knowingly risky investments and then bet against those investments to fail.

    So, if I was a company and knew I was coming up with a game changing invention or process that had the ability to increase profits and share prices, I would bet against the stock price of my competition that it would drop.
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    I cannot understand why like businesses would do this. I can understand purchasing your competition, but not owning a little of them.

    I guess if my competition offered me a ridiculous amount of money for a non controlling percentage (so they could only see my numbers - not my customer list) I would investigate it further.

    One of my competition that reps the same product for the same company that I do in the US, is a worldwide outfit. I've always wondered why they don't buy me out so they could control the cost of the product in the US.

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    Quote Originally Posted by Bobjob View Post
    I cannot understand why like businesses would do this. I can understand purchasing your competition, but not owning a little of them.

    I guess if my competition offered me a ridiculous amount of money for a non controlling percentage (so they could only see my numbers - not my customer list) I would investigate it further.
    The numbers of publicly traded companies are generally available in earnings reports 4 times a year. In between, many companies out right tell you what they're working on, how much they're spending, who their partnering with, and all kinds of info throughout the year.

    If you're a small company, a large company doesn't need to purchase you to see your numbers. They have the resources to create a pretty accurate profile of you if they were interested in doing so. Not much is hidden these days.
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    I know Toyota buys into the individual companies in their supply chain, but I don't know to what extent. I can see specialized machine shops buying into each other where, for example, one specializes in micro machining while the other specializes in large item machining.
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    Thanks for the replies everyone,

    To answer your question: I didn't get the idea of owning shares in your competition from any real world example. It started from a misreading of an article, actually. This one here:

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    I misread this:

    "Aurora is not alone in having company insiders hold significant positions in their cannabis stocks. The co-founders of Aphria Inc., Canada’s third-largest marijuana company that’s nipping at Aurora’s heels, are major shareholders of their company."

    ...to mean that Aphria is a shareholder in Aurora. I read it again and realized this is not what they mean.

    But now I had the idea in mind--companies owning shares in their competition--and I was curious to know if this is a real thing.

    So I googled "can a business own shares in its competition?" and I came up with a few hits. This one here:

    https://money.stackexchange.com/ques...-in-each-other

    ...talks about two business that own stocks in each other and calls it "cross holding" (sorry, not "cross sharing"). They don't mention the businesses being competitors, but further into my google search I did find an article talking about competition owning shares in each other. Can't find it at the moment though.

    In any case, I'm researching the idea, not real world companies that actually do it. By the sounds of your responses, it's an odd idea to say the least and probably doesn't happen often in the real world.

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    I don't think it happens often in the real world, particularly if the businesses are true competitors. It is more likely to happen where there is some overlap but slightly different products and there is a strategy behind the purchase. For example, a few years ago one of the world's largest soft drink companies bought an interest in one of my clients who was a startup in the beverage industry with a new product. Similarly, ABInBev (Anheuser-Busch InBev SA/NV) has at times purchased minority interests in craft breweries and invested in other businesses connected with the beer industry.

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    The day I left my comment I received a call from Alliance Capital inquiring about this subject. I was elbow deep in a repair that was not working with me, so the last thing I wanted was to be bothered with a solicitor. When I heard the word capital I blew the call off believing they were out to loan me money. I googled them and they didn't seem completely illegitimate. I believe if someone was truly legit they would send a letter of interest or have a lawyer become involved.

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