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Valuation Measuring and managing the value ofpanies - Koller T.

Koller T., Murrin J. Valuation Measuring and managing the value ofpanies - Wiley & sons , 2000. - 508 p.
ISBN 0-471-36190-9
Download (direct link): valuationmeasuringandmanaging2000.pdf
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Three years from now:
• EG will have provided shareholders with superior returns.
• EG will have begun pursuing several value-creating expansion initiatives (most likely through internal investments).
• Securities analysts will view EG as a leading-edge value manager of its businesses.
Major Resources
The EVP's staff will include the treasury, controller, planning, and tax departments. In addition, the financial staffs of the operating units will have dotted-line reporting relationships to the EVP. The EVP will have broad discretion in organizing the staff.
Key Organizational Relationships
The EVP's integrating role will require close working relationships with all the other key executives at EG:
• CEO: The EVP will provide recommendations and analyses to the CEO on all major issues. The EVP will carry out the financial policy decisions made by the CEO.
• Operating-Unit Heads: The EVP will work with the operating-unit heads to ensure the smooth functioning of the planning, reporting, and control systems, and to resolve conflicts between corporate and business-unit priorities. The EVP will also counsel the operating-unit heads on finance-related issues and provide analytical support for special projects.
(continued)
Page 44
Exhibit 2.16 Continued
The EVP and staff will manage the relationships with important outside groups, including:
• Investors, securities analysts, rating agencies, and the financial press.
• Financial institutions (banks and investment banks).
• External auditors.
• Regulators and tax authorities.
Critical Skills/Requirements for the Job
The EVP should bring a broad business perspective and should possess the following characteristics:
• Seasoned business judgment and superior analytical abilities, particularly in strategic business and financial analysis.
• Ability to take an independent stance and challenge the ideas of the CEO and operating managers while maintaining their respect and confidence.
• Presence to deal with the financial community.
• Ability to lead/orchestrate negotiations in major transactions.
• Strong administrative and people management skills.
In addition, the EVP should have familiarity with the following:
• Financial markets.
• Financial and managerial accounting.
• Treasury operations.
• Taxation.
The EVP would also be responsible for managing the normal financial affairs and financial reporting of the corporation. But his or her success would be measured mainly by how well EG made the transition to a corporation that managed value in a superior way. If the EVP were successful, in a year or so EG would have a first-draft corporate strategy in place, a clearly articulated financial strategy that supported it, and leading managers who were acting in terms of value creation when submitting plans and proposals. Securities analysts would also have a much clearer understanding of EG's strategy and the reason why it would not make sense to view the company as a breakup candidate. Longer term, the EVP's success would be measured as part of a team that would provide shareholders with superior returns, assist in launching value-creating expansion opportunities, and establish EG with a reputation in the financial community as a leading-edge, value-managing company.
Page 45
Ralph Demsky expected that his six-part plan for building a sharper focus on value into EG could take as long as two years. It would require the recruitment of the new EVP and substantial time and attention from Ralph himself. Focusing planning and performance measurement on value creation, evaluating all major decisions in terms of impact on value, redesigning the compensation system for senior management, and communicating more clearly and consistently with the stock market would help to ensure that EG maintained an advantage in the market for corporate control and produced outstanding value for shareholders. Moreover, by following this much more integrated approach, it would be easier for EG to set corporate priorities, since major decisions would be brought back to the common benchmark of their impact on the value of the company.
Summary
The ability to manage value is an essential part of developing sound corporate and business strategies— strategies that create value for shareholders and maintain an advantage in the market for corporate control. As the case of EG Corporation shows, managing value is not a mysterious process. Valuation techniques and approaches can be complex in their details, but are relatively straightforward in their objectives and applications. Our objective in the balance of this book is to demystify the approaches needed to carry out value management in most companies.
As in the EG case, managing value consists of three broad steps: taking stock of the value-creation situation within the company and identifying restructuring opportunities; acting on those opportunities, which usually involves major transactions such as divestitures and acquisitions as well as reorganization of the company, and instilling a value-creation philosophy in the company.
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