• Acquire new business units with strong competitive positions, if they do not exist internally. Acquisition decisions must take into consideration compatibility, synergies, and timing.
EXAMPLE: Acquisitions played a major role in the growth of Loews Corporation, thanks largely to the Tisch brothers. Until 1958, Larry and Bob Tisch, had been in the hotel industry, growing from humble beginning in 1946 (with the purchase of a resort hotel in New Jersey) to a worth of 65$ million in 1959. But that was about to change, the hotels would soon become a subsidiary of a much larger operation. In 1958 Larry Tisch started buying the stocks of the Loews Corporation, which was then battling against a hostile takeover, and within a year had obtained full control. Larry was appointed CEO and Bob was appointed president and COO. In 1968, Loews purchased Lorillard, a tobacco company manufacturing cigarette brands such as Kent and Newport. After the acquisition, Larry Tisch made some changes at Lorillard. As Lorillard’s core business was selling cigarettes, operations other then those relating to the cigarettes were to be sold. The Lorillard executive team was also replaced.
CNA is a large insurance company that Loews acquired a few years later. In 1974, before the acquisition, CNA had lost 208$ million. As with other companies, the Tisch brothers made some changes at CNA. They decreased the number of employees by 1400 and hired a new CEO. In 1975, CNA showed a profit of 110$ million (although half of it was due to capital gains).
The next in line for acquisition by Loews was the Bulova Watch Company, known for its state-of-the-art tuning-fork technology. In the 1970s, failing to keep up with the change in the industry brought about by the advent of the quartz watch, the company found itself facing bankruptcy in 60 days. Loews was called to the rescue, and by 1979 had acquired 95% of the Bulova Watch Company.
In 1986, Loews added CBS Inc. to their shopping list. By then, Loews’ market value was
estimated to be 5.5$ billion. (Source: "Loews Corporation", 1989, Harvard Business School Case Services Order
Number 9-387-131 Rev. 9/89.)
Concurrently with the above corporate strategies the corporation should maximize
resource generation in accordance with the level of risk the main shareholders are willing to take (risk is discussed below), developing political strategies to support the portfolio changes. In some cases, it may be necessary to change political strategies. Changing the corporate goals is of course only a last resort, when all other alternatives have failed.
A portfolio with too many weak business units in later stages of the life cycle often suffers from insufficient cash flow, profits and growth. An excess of weak business units in early stages of the life cycle leads to deficient cash flow and profits. Too many strong, established business units produce surplus cash flow but provide no growth areas for investment. A portfolio with a profusion of developing, potentially strong business units demands a great amount of attention and offers negative cashflow and unstable growth and profits in return. In general, unbalanced portfolios produce less stable, less reliable growth and profits and entail greater corporate risk than balanced portfolios.
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