Fool's Eye View

[ October 3, 2000 ]

Doing The Splits

By David Kuo (TMFDragon)

Carburton Street, London - It cannot have escaped the attention of many investors that the "divide and conquer" strategy is gathering pace. Last night Lucent Technologies (NYSE: LU) saw its offspring Avaya (NYSE: AV) start its first day at school on the New York Stock Exchange. Today, Nycomed Amersham (LSE: NAM) followed the fashion by announcing IPO details of its life sciences business APBiotech. Ten per cent. of this new drug discovery unit will be traded under the ticker symbol APBI on the Nasdaq Stock Exchange.

And tomorrow, well…er…perhaps one day, we might just see British Telecom (LSE: BT.A) go through a similar birthing process and deliver child BT Wireless to the people.

So What's Going On?

Compare this "divide and conquer" strategy with the strategy of the late seventies and eighties when companies would grow through acquisition. We were told at that time that bigger was better and big was beautiful. Conglomerates created by business gurus of the time were held in the highest esteem. In fact many companies aspired to be the next Tomkins (LSE: TOMK) or Lonmin (LSE: LON), all of which grew through aggressive acquisitions.

The key word at the time was "synergy" from the Greek word synergos meaning " to working together". Consultants managed to find synergy from the most unlikely of places. It was through some of these more tenuous synergisms that we ended up with such comical phrases as "gun-to-buns" to describe Tomkins. What handguns had in common with self-raising flour still raises a quizzical look from students of corporate strategy today. But we were told at the time that synergy did exist and fell for the storyline, hook line and sinker.

But acquisitions still go on today. Cisco (Nasdaq: CSCO) has grown, through acquisitions, to become the $390b telecom equipment behemoth that it is and Marconi (LSE: MNI), the UK's highflying electronics answer to Cisco, is trying hard playing catch-up with its own acquisitive growth.

So why the shift in focus?

There is no change in focus, and synergy is still the key to success. Companies grow and evolve over time and, sometimes, new business units are spawned from the creative talents from within the company. It takes management with vision and foresight to identify the needs and requirements of these new business units. It also takes considerable bravery on the part of management to untie these units from the corporate apron-springs and allow them to flourish unencumbered.

Companies like Nycomed Amersham set a shining example to the rest of the UK's industry. A spin-off of APBiotech would allow the young life sciences business to grow in an increasingly competitive environment unfettered by its parent. It also leaves its parent to focus on doing what it does best, namely to develop its diagnostic imaging business.

Can British Telecom learn from this experience? I suggest the senior management at BT could do a lot worse than pick up the phone and give Nycomed a call and find out where to pick up the forms for an IPO of its BT Wireless division.

Where Next?

Nycomed Amersham website and discussion board.
BT website and discussion board.