Module 2: Transforming corporate portfolios - diversification and divestment

Question 1

Ways of transforming a portfolio

Answer 1

• Refocusing
• Repositioning

Question 2

Refocusing

Answer 2

Elimination of peripheral activities to strengthen the core

Question 3

Repositioning

Answer 3

Striking a new path by establishing a new core business

Question 4

Diversification

Answer 4

Deciding to enter a (new) business

Question 5

Complementarities

Answer 5

Related and dissimilar resources, in which doing more of A increases the returns of B

Question 6

Types of rent

Answer 6

• Ricardian rent
• Monopoly rent
• Schumpeterian rent
• Pareto rent

Question 7

Ricardian rent

Answer 7

Excess returns of scarce resources

Question 8

Monopoly rent

Answer 8

Excess returns through a monopoly

Question 9

Schumpeterian rent

Answer 9

(Temporary) excess returns through innovation

Question 10

Pareto rent

Answer 10

Excess returns by putting resources to better use

Question 11

Divestment

Answer 11

Deciding to exit an existing business

Question 12

8 types of divestment

Answer 12

Spin-off
Spin-out
Split-off
Split-up
LBO
MBO
Carve-out
Sell-off

Question 13

Spin-off

Answer 13

Detached unit becomes independent company, shares owned by parent

Question 14

Sell-off

Answer 14

Low-value/ low-relatedness unit is sold for cash

Question 15

LBO

Answer 15

Private investors use debt financing to acquire detached unit

Question 16

MBO

Answer 16

Managers replace public shareholders through large debt issues.

Question 17

Carve-out

Answer 17

Detached unit becomes independent company, shares sold in public offering. Parent keeps majority of equity.

Question 18

Spin-out

Answer 18

New venture founded by employee, competes within same industry as parent

Question 19

Split-off

Answer 19

Parent’s shareholders receive shares of new company in exchange for parent company shares

Question 20

Split-up

Answer 20

Parent ceases to exist, divested unit remains in market