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Valuation: Measuring and Managing the Value of Companies, Sixth Edition
Chapter 25 Corporate Portfolio Strategy
Solutions
1. Different owners have different skills and goals. Thus, one owner may be able to innovate and to
2. The five potential sources of value are (1) unique links with other businesses, (2) distinctive skills, (3)
better governance, (4) better insight and foresight, and (5) influence on critical stakeholders.
Examples are (1) large pharmaceutical firms have the sales force to bring a promising drug owned
3. One impediment to matching the best potential owner is not having a complete list of all potential
4. The story of Duracell in the 1970s and 1980s shows how different owners can benefit a particular
business more at different points in time. Known as P. R. Mallory for decades, the battery maker
took on the name Duracell in 1978, when it was acquired by Dart Industries. The acquisition gave
Duracell the needed cash to fund new research to compete with foreign manufacturers. When Dart
5. A firm’s needs evolve as it goes through its life cycle. For example, the best company to acquire a
developing firm that consumes natural resources might be a company that has access to those
resources. A year or two later, if the growth of the target firm has slowed and its products are
online, then an acquirer with better access to sales and distribution outlets can add more value. The
change in needs can arise from a change in markets, too. For example, if the markets for raw
materials are abundant, the advantage of a parent company being able to supply those materials
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6. The steps in constructing a portfolio are (1) assess the current portfolio and determine gaps; (2)
evaluate (internal) operating improvements; (3) identify businesses that should be divested, if any;
(4) identify new growth opportunities; and (5) determine the best financial strategy (i.e., capital
7. Diversification is intrinsically neither good nor bad. However, propositions that diversification adds
value exist, and those propositions usually rest on the potential actions associated with the business
8. Like the invisible hand of Adam Smith, society benefits from the resources of a company being
