Business Portfolio Analysis Leads to Value Creation
For a mid-sized utility, SDG developed a corporate portfolio strategy that assessed each business unit and its contribution to corporate shareholder value.
The objectives were to assess the value of the corporate business portfolio under deregulation, develop alternative strategies to build shareholder value in a competitive business environment, and select and begin implementing a new corporate portfolio strategy.
As part of the strategy development process, SDG determined the value of the generation business in a competitive power market, evaluated the transmission and distribution businesses under new forms of regulation, assessed the value of retail marketing under customer choice, and evaluated a range of business and competitive strategies across five regulatory scenarios.
As a result of these activities, shareholder value of the core business increased from $500 million to $700 million, and selecting the most promising strategy augmented this figure by an additional 25%. The utility also gained a clear understanding of key business drivers and risks under competition.
As part of the project, SDG developed value creation models for each business under a range of deregulation scenarios and evaluated the total corporate risk and return profile including cross-business impacts. The utility’s senior management participated extensively in this process, with the full team meeting weekly with SDG for six months.
While it was generally believed that the value of the core business would decline in a deregulated environment, our analysis showed that the value of this utility’s core business would increase. The engagement demonstrated that shareholder value would be higher under almost any deregulated scenario. The business portfolio strategy has faired exceedingly well during the recent market turmoil.
