REASONS FOR BUSINESS DIVESTMENTS 1. The division is a poor fit with the other assets of the firm.

2. Reverse synergy may be to the advantage of the firm (Allegis)

3. The division is a poor performer (Quaker Oats).

4. Poor capital market access may limit the usefullness of the division (Koger Properties).

5. Firm may be experiencing cash flow problems (Chrysler)

6. The firm may be abandoning its core business (Greyhound)

FACTORS TO CONSIDER IN A DIVESTMENT 1. The decision must be timely.

2. A broad range of factors must be considered.

3. The disposal of a division is a major marketing operation.

4. The sum of the parts of the company may be greater than the market value of the company as a whole.

5. Simple components of a division may be sold more easily than the whole complex division itself.

6. The planning should include an evaluation from the viewpoint of potential buyers.

7. Key personnel of the division may present an important problem.

8. A spin-off should be considered if the division has suf f icient size and potential to be publicly-owned company.

9 . The negotiators must maintain communications with the planning technicians.

10. The fact that a sales agreement is drawn up and signed is not an appropriate signal that the seller's team can relax.

THE COST OF DELAY 1. Place a value on the offer.

2. How will the offer change if you wait? Will it be higher or lower?

3. How long will it take for the next offer? What is the cost of waiting until the next offer? (current losses vs opportunity cost of waiting).

VALUING DIVESTMENTS 1. Project future earnings and cash flow for at least 3-S years into the future.

2. Project the potential cash needs during the period:

(a) capital expenditures for modernization

(b) debt financing

(c) working capital needs

3. Estimate the terminal value at the end of the forecast period.

4. Calculate the discounted cash flow of the future returns and the terminal value using an appropriate discount rate.

5. Make appropriate adjustments for the following:

(a) impact on the purchaser's earnings, p/e, debt capacity.

(b) possible synergistic effects (complementary product lines, sales patterns or distributional facilities)

(c) perceived value of the personnel.

(d) some measure of uncertainty regarding purchases of these elements as affecting valuation.

6. Reduce the market value by the liabilities of the division.

7. Compare the resulting value with the proceeds from a bona fide offer.