Owner Sequences and Value Proposition Variation: A New Answer to the Best Owner Question

Abstract

This paper takes a first step towards a theory of sequential prioritization among strategic alternatives. For alternative actions whose values depend on each other and that cannot be executed simultaneously but must be carried out in sequence, the total value of the sequence depends on in which order they are carried out. In particular, the paper discusses who the best owner of a business is and suggests priorities among four types of corporate value propositions, recognizing that different owners have qualitatively different ways to add value to businesses and that a business can be owned by several owners in a sequence. It is argued that a given parent firm can be the best owner in spite of not having the quantitatively greatest value proposition among alternative owners if its value proposition is of higher sequential priority than the alternatives’. It is discussed how sequential prioritization theory in corporate strategy could help explain several phenomena that have not been properly explained with existing theory, such as the conglomerate discount, secondary buyouts, large acquisition premiums, and why so many acquisitions are later divested.