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TCO
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Richmond, VA
Jan 1970
time: 00:18
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quote:
Originally posted by Colon
GP, I was particularly thinking about spin-offs in which a division is floated on the stock market or sold to private-equity firms.
It seems to me that financially troubled corps selling of a loss-making bit are actually outsourcing the work of fixing its profitability, pointing to a weak or unimaginative management. |
Yes, that is certainly sometimes the case. Another way to think of it is like Sten said. (Differences in expertise.) Management (in some cases very candidly) will say we don't know how to run this business best.* Somebody else will do it better. A good example is a cash business that needs some drastic layoffs, etc. to be most profitable. It may be easier to give that problem to an LBO firm, than to fix it within the conglomerate.
It's not always the crappy parts of companies that are sold off, though. Sometimes it is the nice pieces. American Ski Corporation is hovering near bankruptcy. They just sold their crown jewel, Heavenly resort in California. The reason was that they needed some serious cash...and only the crown jewel would bring in enough... You will often see spinoffs of attractive businesses which were grown out of R/D or out of core businesses, but which can (now) stand on their own legs. Some companies will be pretty up front, even with middle management, that a new business unit is being "grown to spin".
Traditionally, there was some stigma associated with becoming smaller and this was much behind a lot of the conglomerate rage in the 70's. But lately the fashion has been more towards focus. It's not a perfect trend and it's not by any means settled.** It probably hit a little earlier and deeper in the US than in Europe and in Europe than in Asia.
*Or they may say, we can concentrate our efforts more towards the core business and grow it better. Really, the key thing is what is worth more, disseperate pieces, or a conglomerate.
**For each individual circumstance, you have to look at the particulars to make a decision on divestitures.
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TCO
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Richmond, VA
Jan 1970
time: 00:18
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quote:
Originally posted by Sten Sture
or busy, or lacking specialty expertise, or lacking the necessary time horizon.... From a consultancy standpoint I would assume that GP will say there are an almost infinite number of solutions to address a business deficiency.
GP - Morton Salt? |
Sten,
A. Agreed on the different "spins" of management expertise.
B. There are probably a near infinite set of deficiencies and solutions. But from a top management perspective, you should put together a clear framework to help bring order to the universe of choices. That was always the way I was taught to look at problems. Attempt to categorize things, so that you can more easily troubleshoot and explain proposed solutions.
In light of our discussion, here, we might say that for a troubled business unit, the options are three-fold:*
1. Major turn-around effort.
2. Divestiture
3. Continue to operate "normally"
Underneath each of these there are other various options. For instance under divestiture, you might have spin-out, MBO, sale to competitor. Under spin-out, you might have partial or full spin. Rather than have a global framework for addressing all troubled companies, it would be better to construct this framework (or at least refine it) for a given engagement, since the best categorization scheme would vary from case to case.
C. Don't remember much about Morton Salt. Seem to remember when I was still in grad school, hearing that it go bought. By Rohm and Haas? What are you alluding to?
*This is a magic number. It's always good if your thought heirarchy is organized into groups of 3. Sorry being cute...but they really do love the number 3.
Last edited by TCO on 21-05-2002 at 07:38
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21-05-2002 07:12
), while only 9% of the American economy was devoted to this.
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