Wednesday, October 14, 2009

Bloomberg Buys Business Week

Big news last evening: Bloomberg announces that it is purchasing Business Week from McGraw-Hill. Let's back up a minute. Why was McGraw-Hill selling the magazine in the first place? Clearly, the obvious short-term reason is that the magazine business has been in decline, with falling circulations as well as large drop-offs in advertising revenue during the recession. However, more strategic reasons also exist for the divestiture. McGraw-Hill is a diversified corporation with a number of businesses. Most people are aware of its book publishing unit, but the firm also owns Standard and Poors, JD Power, Aviation Week, and Platts. Of course, the diversity of businesses raises a critical question: Do these businesses belong in the same corporation? Actually, one has to ask another question to truly evaluate the merits of divesting Business Week and selling it to Bloomberg. We should ask: Is Business Week a better fit at Bloomberg or within McGraw-Hill? I believe that one can make a strong argument that Business Week will prove to be a better fit at Bloomberg, where the strategy will be much more focused on business news as opposed to the many other things that McGraw-Hill has in its portfolio. In sum, there's a key lesson here in corporate strategy. We should not only ask whether a particular business unit is a good fit within a particular corporation... to assess whether value is truly being maximized, we ought to ask: Is that business unit even more valuable within another corporation?

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