Part of running a great company is admitting when you can’t do it all. In distinct ways, CEOs Muhtar Kent of Coca-Cola (KO) and Jeff Immelt of General Electric (GE) are proving this point.
At Coke, Kent has been struggling with a weak set of brands in the fastest-growing area of beverages – energy drinks. The news today is that Coke is paying $2.15 billion for one-sixth of Monster Beverage (MNST), the number two player in energy-boosting soft drinks. The common reaction this morning is that it’s a possible prelude to Coke eventually acquiring the whole company.
Maybe. But the structure of the deal says it’s about Coke looking for a better vehicle to grow its energy brands, which it has so far been unable to do well. Coke is combining its energy-drink line with Monster, in exchange for Monster’s natural-soda and iced-tea brands. Coke needs a strong entry in energy drinks given that 70% of its business is from traditional sodas, a product that’s in serious decline in the developed world.
At GE, Immelt is reportedly looking to sell the revered GE appliances division, maker of stoves and refrigerators for a century and a fixture of countless American homes.
This business is still profitable. But it has low margins and high fixed costs, and the global appliance industry is dominated by big Asian and European competitors. A decade ago I recall meeting GE’s then-CFO, whose first comment on the appliance business was, “Well, if you weren’t already in the business, you wouldn’t get into it.”
Yet GE has been disciplined about how much capital it ties up there and has preserved the strong brand, making it worth plenty to Electrolux of Sweden or perhaps another buyer. GE is in general trim-down move, recently moving to sell off GE Capital’s credit-card business in a general streamlining effort.
The investment bankers and consultants call this sort of trim-down effort “fit and focus” - concentrating on what you do very well and parting with the rest. You could also just call it smart.
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