Value Creation and Corporate Diversification: The Case of Sears, Roebuck and Co.

Abstract:     
We provide a clinical perspective on corporate governance, shareholder activism and corporate restructuring by studying Sears, Roebuck & Co. In particular we focus on Sears' diversification into financial services during the 1980's, the poor performance that followed, and the ensuing shareholder activism aimed at pressuring management to enhance shareholder value. Ultimately the firm divested its financial services operations and refocused on retail. We estimate that the gain to Sears' shareholders over the entire diversification-refocusing period was some $1.5 billion, with approximately $1.113 billion resulting from the announced breakup of the firm. However, comparing Sears' performance to that of a homemade diversification strategy suggests that the firm's corporate diversification resulted in a significant opportunity loss for shareholders. Sears' governance structure appears to have contributed to the firm's performance problems.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G32, G34

Accepted Paper Series