Wednesday, February 04, 2009

Conglomerate Bankruptcy

News reports indicate that Spectrum Brands filed for Chapter 11 bankruptcy protection on Tuesday. Spectrum is a conglomerate with businesses including batteries, shaving products,lawn and garden products, insect repellents, aquarium products, and pet products/supplies. The bankruptcy is a reminder of the challenges that firms face if they pursue an unrelated diversification strategy. While those strategies were once quite popular (back in the 1960s and 1970s), few firms maintain such conglomerate strategies successfully today. The unrelated nature of the diversification leaves little opportunity for capturing economies of scope (or synergies). Without substantial scope economies, it's difficult to justify putting such a wide array of businesses under one corporate parent.