PepsiCo divested its group of fast-food restaurant businesses (KFC, Pizza Hut, and Taco Belly to Yum! Brands in order to allow PepsiCo to focus on its core soft drink and snack-food businesses. A useful guide to determine whether or when to divest a business subsidiary is to ask. a. "Can't we derive a parenting advantage with these businesses?" b. "Do we need to do the math to achieve 1-1 = 3 outcomes from these diversified businesses?" c. "If we were not in this business today, would we want to get into it now?" d. "Have we missed the opportunity to milk these cash cows?" e. "Will these three businesses pass the cost-of-exit' test?

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30-11-2022
Business

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PepsiCo divested its group of fast-food restaurant businesses (KFC, Pizza Hut, and Taco Belly to Yum! Brands in order to allow PepsiCo to focus on its core soft drink and snack-food businesses. A useful guide to determine whether or when to divest a business subsidiary is to ask. a. "Can't we derive a parenting advantage with these businesses?" b. "Do we need to do the math to achieve 1-1 = 3 outcomes from these diversified businesses?" c. "If we were not in this business today, would we want to get into it now?" d. "Have we missed the opportunity to milk these cash cows?" e. "Will these three businesses pass the cost-of-exit' test?

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qwapple qwapple · Answer 1 · 2022-12-04T07:30:10+01:00

A helpful guide to determine whether or when to divest a business subsidiary is to ask c. "If we were not in this business today, would we want to get into it now?"

When one business owns a controlling stake in another, a parent-subsidiary relationship is established. A parent firm may create multiple subsidiaries that are all under its management.

Holding corporations are companies that have several subsidiaries but no core business operations of their own. A parent firm can take up a controlling stake in an existing business or form a new subsidiary from within. Companies have subsidiaries for a variety of reasons.

Additionally, a subsidiary enables you to sell stock in a piece of the business without affecting the stock price of the parent business. For instance, initial public offerings are frequently conducted by startups to acquire money for the business and to recoup part of the personal investment made by the founders.

For an established business that needs money for a new project, this is more difficult. In this situation, it might be preferable to spin the new company into its subsidiary and go public with that subsidiary. Only the subsidiary that reaps the rewards of the capital investment is required to sell equity to outside investors.

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