October 25, 2005

Purdue management sources can discuss Cendant breakup

WEST LAFAYETTE, Ind. – Two Purdue University Krannert School of Management strategic management sources and two finance professors can discuss Cendant Corp.'s plans announced Monday (Oct. 24) to split into four separate companies.

G. Logan Jordan, an associate dean whose academic field of expertise is strategic management, says Cendant's plans can be seem as a corrective to the 1960s and '70s when conglomerates were all the rage.

"When you form a conglomerate of existing companies, you are suggesting that there is some economic value you can reap either through the overall scale of the activities or how well related the businesses are," Jordan said. "In Cendant's case, the operations are travel and vacation-related companies, such as Avis, Days Inn and Orbitz. The question now is how breaking them up will add shareholder value."

Thomas H. Brush, associate professor of strategic management, also can discuss strategic aspects of the breakup.

David J. Denis, professor and head of the Krannert School's finance area, says both academic theorists and the market have begun to cast a jaundiced eye on the conglomerate as an effective corporate structure.

"The academic literature has documented that the conglomerate structure does not generally work well," Denis said. "The market tends to place a lower value on conglomerates than on comparable focused firms."

Diane K. Denis, a professor of finance, also can discuss Cendant, mergers and acquisitions, and trends in corporate structure and governance.

Jordan said for the market to view conglomerates favorably in the current environment requires readily apparent synergies that provide a competitive advantage.

"Synergies, for example, could involve sharing customer information across the conglomerate's various units to anticipate and fulfill customer needs and drive business," he said.

Writer: Mike Lillich, (765) 494-2077, mlillich@purdue.edu

Sources: G. Logan Jordan (765) 494-4370, jordan@purdue.edu

Thomas H. Brush, (765) 494-4441, brush@purdue.edu

David J. Denis, (765) 494-4434, djdenis@purdue.edu

Diane K. Denis, (765) 494-8265, diane@purdue.edu

Purdue News Service: (765) 494-2096; purduenews@purdue.edu

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