Divestiture & Liquidation Strategies

Managing the diversified firm

Recent research reveals that superior performance of the diversified corporation is an outcome of :

• the attractiveness of the industry
• the positioning of the firm within the industry
• the linkages among business units in term of resources and capabilities : the ability to transfer skills to share and leverage resources

Divestiture & Liquidation Strategies

Situations occur when one or more of diversified company's business subsidiaries have to be sold off or shutt dowm.

Categories of divestitures

• Strategic divestiture
• Selling of undesired units
• Selling in response to liquidity concerns
• Forced divestitures

Stock market implications of divestitures

• Divestitures can increase value : on average, divestitures linked with an explicit strategy are associated with share losses
• Divestitures can destroy value : on average, divestitures represented as routine houskeeping exercises are associated with share losses
• Positive valuation is consistent with most management ; events associated with negative valuation need more consideration
• "Sell off dogs ?"
  • Negatives of disuniting
  • Emotional issues - employee morale and face-saving administrative transaction costs
  • Viability of the "buy-and-sell" strategy

 

Source :

Strategic Management, Raphael Amit, Professor at Wharton University of Pennsylvania, US

 

(c) ECOFINE.COM, Bernard Jaquier, Professor in Economics and Finance, Lausanne, Switzerland, 2020