Wednesday, September 10, 2008

Synergies or Spin offs

What's a major corporation to do - get larger or slim down. Find vertical or horizontal collaborations and build cost efficiencies or sell or spin off assets into separate and distinct entities. And is either strategy good for the goose or for the gander; that is, does it benefit the health of the company or the shareholder. And are the two beneficiaries on the same page or at odds with one another.

That seems to be the question as more companies are choosing to shed assets or being pushed by shareholders to do so. From Time Warner to Liberty, the move is on to split. For Cablevision, investors are grabbing stock with the hope that by spinning off Rainbow, the stock price will rise. For GE, shareholders believe that NBC should be spun off as it is unrelated to its other business ventures. But maybe it is being done for another reason. As Business Week speculates, "some of the world's top media companies may just be shedding noncore or incompatible businesses to give themselves leeway to nab new assets in growing areas, such as the Web and digital television." But does that mean that distribution and content are incompatible while staying a pure content company is more strategic.

At the end of the day, it is about unlocking value and companies may see the spin off of one entity to acquire another better aligned with its future endeavors. "Time Warner's cable unit, which officially spins off later this year, could become an acquisition machine if its stock—separated from Time Warner's advertising-intensive businesses—takes off. Maybe the new company makes a bid to buy Cablevision, the New York-area cable system it has long coveted." At any rate the entertainment landscape seems to be changing rapidly.