Mine and Ours: What to Disclose and What to Keep Private During
Pardon me, but
your numbers are showing. And if you are a CEO preparing for a
divestiture, you might be exposing too much. Deciding what
information to share and what information to keep private is one of
the most critical decisions companies face when they split off
divisions or product lines. Share too much information and
competitors can identify advantages to use against the parent
company. Keep irrelevant information and risk paying unnecessary
costs, such as excess storage, maintenance, and disaster-recovery
“You have to
be very careful about what information you share in a divestiture,”
said Mitchell Lee Marks, president of San Francisco-based
JoiningForces.org and editor of Resizing the Organization:
Managing Layoffs, Divestitures and Closings. “It’s a sensitive
issue and a big problem, especially if the divestiture falls
number of boardrooms are facing the problematic question of what
information to share. By September 2007, global divestitures had
reached a record-setting $1.64 billion for the year in almost 10,000
deals, up 25 percent for the same period in 2006, according to
Dealogic, a software developer for the investment-banking industry.
can be a healthy strategy for pruning under-performing divisions,
responding to changes in the marketplace, allowing a company to
focus on different markets, or just because cash is needed for new
initiatives. Just like mergers and acquisitions, which a “Gartner
Report” described as “… the norm for companies and their service
providers,” divestitures should be approached as a strategic element
of robust business cycles.
corporate America’s most well known names are in the midst of
divestitures. Nasdaq reported that Ford Motor Co. sold its Aston
Martin nameplate for $925 million in March 2007 and is considering a
sell-off of its Jaguar, Land Rover or Volvo units. The Wall
Street Journal reported that Chrysler may follow Ford and
General Motors Corp. in getting rid of assets that are considered “noncore.”
Divestitures allow companies to refocus their resources. New York
jeweler Tiffany & Co. boosted its fiscal outlook for 2007 based on
the impending sale of its Caribbean and Tokyo jewelry stores,
according to Dow Jones Newswire.
divestitures can provide many benefits, CEO’s must plan what
information to share under stressful conditions. They are expected
to sustain growth and retain existing customers while reducing the
impact of organizational changes.
unwanted divisions or products is complicated. Deciding how to
handle information during a divestiture is not unlike splitting the
assets of a marriage during a divorce. Not only is the parent
company affected, but acquiring companies are as well. Very often
the divested company is sold to a competitor. Providing historical
information for the part of the company to be divested may increase
the selling price, but may provide information that you don’t want
your competitors to have.
a principal with Richmond, Va.-based Dominion Partners, an advisory
service for middle-market businesses, said buyers are often at the
mercy of the parent company as to what information is shared.
recalled the difficulty of trying to determine the value of divested
pharmaceutical product lines for a client interested in acquiring
them. “The pharmaceutical company said, ‘This is what we will give
you. If your client wants to make an offer, that’s great.’ But they
weren’t going to disclose anything more, which made it difficult to
understand sales and manufacturing costs,” Naschod said.
information, such as customer lists, is considered low risk.
Competitors likely know already whom major customers patronize. And
realistically, by the time a divestiture is announced, it’s likely
that some key data may already be in the hands of departing
employees, or already part of the buyer’s information.
concern are trade secrets, trend analyses, prices, discounts, cost
of goods sold and contract terms with suppliers. If exposed, this
information could give competitors an advantage and should be kept
private, if possible. Public and private companies have different
Definitely. That’s why technology is playing an increasingly larger
role by helping to automate the process, reducing time and expense.
of information is going to continue to expand,” said Sean Snaith,
director of the Institute for Economic Competitiveness at the
University of Central Florida. “There’s a limit to what human beings
are able to parse.”
systems can improve accuracy and simplify sorting what information
should be kept and what needs to be mirrored. Systems that do not
store data, such as fax servers, or credit card processing systems
would typically be duplicated so that the parent company and
divested unit have identical copies.
and summary financial records should be kept with historical data,
but detail orders and other transactions should be separated.
Regulations often require keeping the copies of the general ledger
and human resources data for both the parent and separated company;
this information is not split out. Master data, such as customers,
suppliers, and products can either be separated or both companies
can retain copies.
encourage setting up two separate data centers, one for the parent
company and one for the divested company. The process of separating
data involves several steps. The first step is setting up the
physical environment for each of the data centers and determining
which systems are to be retained in their current state and which
systems need to have the data separated. The second step is to
obtain the proper licenses for all the software that needs to
duplicated in each of the two environments. Then, filter criteria
are defined to separate the data for the divested company and the
parent company. Finally, there is the arduous task of actually
separating the data. Often, reports and interfaces have to be
rewritten after the data is separated. Hiring consultants to oversee
all the separation activities also is highly recommended to allow
executives to focus on strategic operations, participate in the due
diligence, and focus on ways to get the most value from the units
they are going to sell.
is essential. Experts recommend starting at least three to four
months prior to the separation and regularly communicating the
impact of changes to all business units.
associated with separating systems can soar, often including new
facilities (separate facilities for the parent and for the divested
company), new hardware, new software licenses, the actual data
separation activities, rewriting of reports, implementing new
security rules, restructuring of data warehouses, and creating new
programs and interfaces to the separated systems.
With so much
at stake, wise executives will take steps to ensure that when they
decide what information is “yours, mine or ours,” the only numbers
they expose are the ones they intended.
Tips On Managing Data During A Divestiture
help. If you think consultants and special software are
expensive, try re-creating historical data that is
accidentally purged or dealing with the impact of
unintentionally divulging proprietary information to your
contracts and licenses. Decide who will pay any associated
adequate planning time before announcing the divestiture.
employees informed during the planning and divesting stages.
beyond the divestiture. How will changes affect the parent
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