Corporate strategies change over time as internal and external forces act upon the firm. As strategies change the factors of production within the firm must change also. When this occurs it is likely that firms will sell off assets that do not contribute to the emerging strategic direction. The selling off of assets, for this reason, is often referred to as the divestiture of non core assets.
Yesterday the Dominion Post reported that Skycity was progressing through a deal to sell off its cinema division to an American firm, Reading Cinemas. Skycity, primarily a Casino and Hotel operator, acquired cinema assets as it moved towards a diversified entertainment portfolio. Since then Skycity have begun to distance themselves from this strategy to return their focus to the casino and hotel industry, its core competency, as the following remarks from New chief Nigel Morrison explain:
"There was good rational for acquiring those assets several years ago. But as the board has already recognised they are not a core asset for us. Going forward it does make sense to divest that business." NZ Herald
Although assets may become 'non core' it does not mean that they are unprofitable. So why then should they be sold?
In the long term, the corporate strategy is more likely to drive bottom line profitability than individual assets. The value generated from a corporate entity, or any business entity for that matter, is driven by the combination and application of assets towards the goals of the under riding strategy.
As the environment changes we must change in order to capture the opportunities around us.
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