Today’s News Pepsi’s challenges Pepsi’s challenges Spun-off restaurants Spun-off restaurants Acquired Tropicana Acquired Tropicana Pepsi Bottling IPO Pepsi Bottling IPO Disney -- Retail stores Disney -- Retail stores Baby merchandize Baby merchandize White goods White goods Paint Paint AT&T AT&T Spin-off or sell Consumer Long Spin-off or sell Consumer Long Distance unit Distance unit Maxtor acquires Quantum HDD Maxtor acquires Quantum HDD unit unit
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Today’s News n Pepsi’s challenges u Spun-off restaurants u Acquired Tropicana u Pepsi Bottling IPO n Disney -- Retail stores u Baby merchandize u White.
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Disney -- Retail storesDisney -- Retail stores Baby merchandizeBaby merchandize White goodsWhite goods PaintPaint
AT&TAT&T Spin-off or sell Consumer Long Spin-off or sell Consumer Long
Distance unitDistance unit Maxtor acquires Quantum HDD unitMaxtor acquires Quantum HDD unit
Corporate Strategy
Q: What businesses are we in?Q: What businesses are we in?
How did we get there?How did we get there?
Single Business
Product Line Expansion
Geographic Expansion/Vertical Integration
DiversificationRelated / Unrelated
Diversification and Poker
J
3K
7Q10 2
4
3 4 7
3J
Why Diversify??
1994Q1 Q2 Q3 Q4
DivisionSales($)
IndustryGrowth
(%)
1993 1994 1995 1996 1997 1998
Benefits of Diversification
Reduce earnings volatilityReduce earnings volatility Minimize riskMinimize risk Move firm into attractive Move firm into attractive
industriesindustries Prolong “life” of firmProlong “life” of firm Improve long-term performanceImprove long-term performance Capture synergies and strategic Capture synergies and strategic
“fit” between businesses“fit” between businesses Steer corporate resourcesSteer corporate resources
Types of Diversification
VerticalVertical HorizontalHorizontal
RelatedRelated UnrelatedUnrelated
GlobalGlobal
Evaluation of Diversified Firms
Identify present corporate Identify present corporate strategystrategy extent and type of extent and type of
diversificationdiversification geographic scopegeographic scope new acquisitionsnew acquisitions recent divestituresrecent divestitures mode of new business mode of new business
entryentry
Evaluation of Diversified Firms
Reveal contextual position of Reveal contextual position of corporate portfolio corporate portfolio
BCG Growth-share Matrix
Indu
stry
Gro
wth
Rat
e
Hi
Lo
Relative Market Share
1.0< 1.0 > 1.0
Evaluation of Diversified Firms
• Reveal competitive position of corporate portfolio - G.E. Industry attractiveness/business strength matrix
Indu
stry
Lon
g T
erm
A
ttra
ctiv
enes
s H
M
L
Firm’s Competitive Position
Str. Avg. Weak
Diversified Inc.
HQ
Bus. 1 Bus. 2 Bus. 3
$ $$
GrowthSize
Remote Env.
GrowthSize
Remote Env.
GrowthSize
Remote Env.
Entering New Businesses
WHY?WHY? Does business fit?Does business fit?
FinanciallyStrategicallyCulturally
If not in this business today, would we want to get into it now?
Intensifying competitionIntensifying competition Global marketsGlobal markets Growth in new industriesGrowth in new industries NOTE:NOTE:
20% of 20% of all-timeall-time corporate corporate mergers have occurred mergers have occurred within last 18 monthswithin last 18 months
Justifications Attractiveness testAttractiveness test
Industry factorsIndustry factors Core competenciesCore competencies Strategic positionStrategic position
Cost of entry testCost of entry test Buy outstanding sharesBuy outstanding shares CashCash Contributions to merger or JVContributions to merger or JV
Better off testBetter off test Synergies, econ. of scale/scopeSynergies, econ. of scale/scope Consolidation of resources, activities Consolidation of resources, activities Competitive advantage?Competitive advantage?
Why MBC’s “Should” Outperform SBC’s Economies of ScopeEconomies of Scope
FilmsFilms VideosVideos Network TVNetwork TV Cable TVCable TV HotelsHotels Cruise linesCruise lines MerchandiseMerchandise Brand licensingBrand licensing NEW …NEW …
Retail StoresRetail Stores
Toy Story
TV Show
Merchan
dise
Food Items
Theme P
ark
Corp. Transformation Choosing new businessesChoosing new businesses PlannedPlanned Surprises Surprises
Change business portfolio (Monsanto)Change business portfolio (Monsanto) Change global portfolio (CitiBank)Change global portfolio (CitiBank) Capability bundling (Disney)Capability bundling (Disney) Industry consolidation (Chrysler)Industry consolidation (Chrysler)