Harvard Business Review
The Idea in Brief
If your company's like most, it's geared up to buy assets, not sell them. So when you decide to divest a business, you risk doing it at the wrong time or in the wrong way.
Most corporations are not as skilled at selling off assets as they are at buying them, often divesting at the wrong time or in the wrong way. The best companies manage their divestiture portfolios in a disciplined manner, following four straightforward rules. They take advantage of divestiture opportunities, and earn, on average, twice as much for their shareholders. Partner David Harding discusses the merits of a disciplined approach.
To make the right divestiture decisions, apply these four rules recommended by Mankins, Harding, and Weddigen:
- Establish a team focused on divesting.
- Divest businesses that don't fit with your company's long-term strategy and that would create more value in another firm's portfolio.
- Make robust plans to separate out the divested businesses.
- Clearly communicate what's in the deal for buyers and employees.
- Companies that apply these rules strengthen their core and create twice as much value for shareholders. Take Weyerhauser. Through its disciplined divesting, the forest-products company transformed itself from a traditional pulp-and-paper company into a leader in timber, building materials, and real estate. And it's produced some of the highest returns in its sector.
Published in October 2008