The Motley Fool is calling 2011 “The Year of the Spin-Off.” Splitting up companies for financial reasons is a great way to unlock shareholder value, but companies can make a mess of their brands if they are not careful. Effective branding impacts the long-term future value of the spun-off companies. Getting the brand right in mergers, acquisitions and spin-offs should be a top priority.
Motorola has hobbled the future value of its two halves. Both new companies are trying to operate under the same brand (one as Motorola Mobility and Motorola Solutions.) Their customers now constantly ask: “which Motorola?” Marathon Oil is making the same mistake, breaking itself into Marathon Petroleum Corp. and Marathon Oil Corp. One company will focus on exploration and production and the other will run refineries and gas stations. Should the Marathon production company suffer an oil spill disaster like BP, consumers will boycott the Marathon gas stations. Though legally and financially they are two companies, in the marketplace they are one brand. Sharing a brand creates confusion and risk.
When companies contemplate a major restructuring, making a wise brand decision up front maximizes the chances of success for any spin-off, acquisition or merger.
1. Consider brand value, what drives it today, and what its future prospects may be. In the Marathon case, changing the brand in retail will cost the company significant brand equity and will cost a fortune in new signs, repainted trucks, new packaging and more. Letting Marathon live as the retail brand and changing the name of the business-to-business exploration and producer company is a way to maximize brand value and minimize cost.
2. Where will growth come from in the future? The company with the greatest growth potential should keep the legacy brand. With Motorola Mobility and Motorola Solutions, it’s anyone’s guess which one will do best, but one company needs to rebrand. Motorola should follow the example of AT&T. When that company broke up, the consumer-facing business kept the venerable name, while the B2B side adopted Lucent.
3. The role of the brand can also determine what spin-off keeps the parent name. In the case of Fortune Brands, the liquor business will probably retain that name because of its close association with the alcoholic beverage portfolio. The golf and home improvement divisions, where individual product brands are of primary importance, will continue under new holding company names.
4. Organizational structure and corporate culture can dictate branding decisions. Sara Lee acquired Hanes Corp. in 1979, but the company always operated autonomously in North Carolina, far from the Chicago-area Sara Lee headquarters. When Sara Lee spun the company off in 2006, reverting to a version of the old Hanes corporate brand was a natural step.
As the Year of the Spin-Off gains momentum, let’s hope that company leaders make better brand decisions. Companies can split, but brands cannot.