Assignment: Write a two paragraph or longer response to the following question – Can you describe a situation where a company made a decision to diversify? What type of diversification was it? Did it pass the three tests of building shareholder value?
Your short essay answer can focus on either an example of related or unrelated diversification described in Chapter 8 of the text (pages 157-162). Your task will be to find a company that has diversified and discuss whether the move was related or unrelated diversification. Also, did the diversification move pass the three tests of building shareholder value (page 155)? Also, how did the diversification turn out? Was it a net positive for the company, a negative, or is the jury still out on the outcome?
Then, read and post a reply to two of your classmates regarding the analysis of their company. Specific questions to address include: Do you concur with your classmates’ analysis of the company? Is there another category of diversification that might be a better fit for the company? Why? Do you think that the diversification of the company adds to shareholder value? Why or why not?
Rule: Only one post per company.Your post must be a unique company not discussed by any other post on this discussion board. Please discuss only one company in your post in order to give everyone a chance to focus on a single company in their example.
Rule: Post one (1) original thread and two (2) replies to other threads for a total of three (3) posts on the discussion board. Your original thread must be unique to you and must focus on a unique company that is not discussed by anyone else in the class.
Thread Example: In 2007, Nike acquired Umbro, a sportswear and soccer equipment company based in Manchester, England. Because the acquisition of Umbro was a sportswear company, this was a related diversification move for Nike. At the time of the acquisition, the European Sportswear Industry appeared attractive, particularly for Nike, which sought a toehold in Europe. The cost of entry, though, was high. The acquisition price was far in excess of Umbro’s stock price at the time of acquisition. Nike management argued that both firms would be better off post-acquisition.
In 2012, Nike announced that they would be selling Umbro to focus on their core businesses. Reports suggested that Nike has been unable to successfully integrate Umbro, the unit continued to operate at a loss, and the European market had become unfavorable for many competitors, not just Nike. Nike reportedly took a loss on the sale of the Umbro subsidiary.