EXECUTIVE JULY 2008 IPMI Graduate School of Business 1 CORPORATE STRATEGY

Sessions D I V E S T I T U R E 2

Quick Test – Session 15: 3

4 Corporate Strategy Framework BUSINESS MIX (industry, biz strategy, ownership) CORP HQ ROLE (organization, control, process) RESOURCES (assets, skill, competence) VISION OBJECTIVE SKILL TRANSFER SHARING ASSETS PORTFOLIO STRATEGY SHARED ACTIVITIES TIGHT CONTROL CORPORATE ADVANTAGE ______ ____

Internal Appraisal Continous Review Preliminary Objectives Internal/External Events External Appraisal Major - SWOT - STRENGTHS, WEAKNESSES, THREATS, AND OPPORTUNITIES ( Core Skills) MODIFIED OBJECTIVESSTRATEGY PROD/MKT PORTFOLIO PLANS DEV of New Biz Ideas (NBA) EVALUATION of NBA INTERNAL GROWTH or ACQUISITION DEV. ORG. STRUCTURES DESIGN CONTROL PROC and FUNCTIONAL PLANS EVALUATION of STRATEGY CORPORATE STRATEGY MODULE THE STRATEGY CONTROL FRAMEWORK (2) 5

Why Divest? Problematic Business – Under-performing – Hamper other divisions – In many cases divestiture decision has been delayed many times Active Portfolio Management – Aligning with strategy – Maintain a healthy portfolio of business, strengthen and rejuvenate company – Avoid high cost of holding: limited growth oppty, limited support from CHQ, depressed exit price – Divestiture is a normal act Creative “Destruction” – Established business tend to be risk-averse, lack of entrepreneurship – Return to shareholders deteriorate over time – Hampers creativity in building new business – May actually “liberate” the business unit REACTIVE, LOW VALUE HIGHER VALUE OF CORP BEST, BUT REQUIRE GUTS 6

Most Divestitures are Reactive Dranikoff, et.al., Divestiture: “Strategy’s Missing Link” 7

Proactive Divestiture Create Business Create new business Expand growing ones Communi- cate Hold-off until deal is likely Briefly justify and explain reason Identify Candidates Prepare divestiture culture Strategic rationale Internal mechanism 8

Case: PRUDENTIAL SECURITIES The Prudential Insurance Company The Bache Group Incorporated “Bulge – Bracket” status Change in investment banking industry 9

Case: Pru Securities Lessons Learned 10 The “FIT” between two lines of businesses / companies matters, The investment banking industry is complex, Conflict-of-interests still exist, Strategy needs to be effectively executed, Alignment of firm’s strategy is important.

Case: Pru Securities Lessons Learned (continued) Divestiture can be driven by performance, industry and competitive situation, as well as conflict of interest with other business or lack of synergy with the parent company, Divestiture can help parent company to re-focus on what they can do best, in this case creating synergy of insurance with financial advisory in the brokerage division going into retail business Other actions may be taken such as partial divestiture, merging with other business, etc. 11

Case : AT & T Armstrong’s vision AT&T’s acquisitions The telcom industry Restructuring of the company 12