Breakup!

Sadtler, Campbell and Koch, associated with Ashridge Strategic Management Centre, argued that many multi-business companies destroy value by holding businesses together and should break themselves up.

The reference has not verified the book's detailed contents. The argument as the Ashridge group developed it rests on the concept of parenting advantage. A corporate parent adds value to a business only if it can do something for that business that other potential owners cannot do as well: supplying capital on better terms, providing capabilities the business lacks, imposing better governance, or creating linkages with other businesses in the portfolio. If the parent cannot do this, its overhead and its constraints subtract value, and the business would be worth more owned by someone else or standing alone.

The practical test they propose is to ask, for each business in a portfolio, whether the parent is the best owner. The answer is frequently no, and the authors argue that conglomerates persist because breaking up destroys the corporate centre's own position rather than because the structure creates value.

The evidence in this literature includes the diversification discount, meaning that multi-business firms trade at lower valuations than the sum of comparable standalone businesses, and the returns to announced demergers and spin-offs, which have generally been positive.

The argument was made during a period of active corporate restructuring in the 1990s. The conclusion is contested: the diversification discount may reflect selection, since firms that diversify may be those with poor prospects in their core, and internal capital markets have advantages in settings where external financing is expensive. The subsequent decades produced both continued breakups and the growth of technology conglomerates that appear to contradict the argument. Readers should verify the book's specific evidence.