Case study: Downsizing strategy influence on the structure of the firm

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Management, Vol. 17, 2012, 1, pp. 75-92 A. H. de E. E. de los Monteros, C. S. Bravo: <strong>Case</strong> <strong>study</strong>: <strong>Downsizing</strong> <strong>strategy</strong> <strong>influence</strong> on the… Regarding the profitability of the largest companies, Telefónica was ranked third in the period 2003-2007, and by capitalization, it has moved from the 12th position to second in 2008. In the event-<strong>study</strong>, we analyzed specifically four downsizing decisions taken by Telefónica: the divestment of Antena 3 TV, TPI, Airwave and Endemol, as shown below. Audiovisual sprot: 07/03 Desinversiones: Divestments Euroligue Marketing: 11/03 Sistemas técnicos y loterías Endemol: Endemol: Antena 3 3 TV: TV:Oct-nov oc-nov ‘03 /03 del Estado: 06/07 Announc: Anuncio: 05/07 3G Mobile: 12/03 Sale: Venta: 07/07 07/07 Tic tac ticket: 07/03 One Travel: 04/05 Airwave: Airwave: Prime Argentina Announcement: Anuncio: 13/06 12/06 Playa Madrid: 2003 Sale: Venta: 04/07 04/07 Katalyx: 1Q 2003 Emplaza: 01/04 TPI: TPI: CANTV: 05/07 Eutelsat: 2004 Announc.: Anuncio: 02/06 0/06 Sale: Venta: 04/06 04/06 Radio Estereo: 11/04 Radio Continental:11/04 Pearson: 09/04 Figure 5: Business Divestitures Analysis Data was taken from the Telefónica stock market prices during the period 2000-2007. During these years, Telefonica carried out the downsizing strategies that are analyzed. Data of the two index prices against which the events are to be analyzed were taken during the same periods. Dow Jones was selected as an index of Industrial Average, an efficient market; and the S&P 500, which is commonly used as a proxy for the market as a whole, was the second selected index. The IBEX index was removed from the <strong>study</strong> because Telefónica S.A. capitalization represents 15-20% of the total capitalization index, which distorts the result. By definition, a market has a beta, which represents the trend or slope of the same. Individual companies that participate in the market are classified according to their deviation from that market. Once the time windows are defined, betas are calculated for Telefonica and each of the indices, calculated 86
Management, Vol. 17, 2012, 1, pp. 75-92 A. H. de E. E. de los Monteros, C. S. Bravo: <strong>Case</strong> <strong>study</strong>: <strong>Downsizing</strong> <strong>strategy</strong> <strong>influence</strong> on the … outside the time window under <strong>study</strong>, taking into account a period 10 times superior to the time window. The expected returns of the company, during each time window, are calculated and compared with each selected index, thus rentability variation due to the event analyzed is as follows: ER = R TEL – β R index Expected returns were calculated based on the high, low and closing prices, for having a wide range of returns for each period. To find whether the excess return on the time window is different from zero, one should analyze the t- student value, dividing the average return variation in the time window by the standard error obtained. If the t-student is statistically significant, the event <strong>influence</strong>s the results of the company. Analyzed results are statistically significant and show extraordinary results associated to the months following the implementation of the downsizing <strong>strategy</strong>, as shown by following figures. CRITICAL VALUE: T STUDENT 80 FREEDOM DEGREES Y 0,975 = 1,99 ANTENA 3 TV (JUL 03 - MAR 04) Beta : 0,95756242 DJI ANNOUNCEMENT ANNOUNC. ANNOUNC. ANNOUNC. SALE POST TIME POST TIME POST TIME POST TIME jul-03 ago-03 sep-03 oct-03 nov-03 dic-03 ene-04 feb-04 mar-04 Average 0,0271 -0,0237 -0,0102 -0,0022 0,0219 0,0623 0,0425 -0,0156 0,0102 SD 0,0622 0,0684 0,0675 0,0532 0,0612 0,0783 0,0672 0,0649 0,0651 T-STUDENT 3,9147 -3,1219 -1,3581 -0,3660 3,2225 7,1603 5,6935 -2,1673 1,4157 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 RADIO ARGENTINCA (JUL 04 - MAR 05) Beta : 1,00266684 ANNOUNCEMENT ANNOUNC. ANNOUNC. ANNOUNC. SALE POST TIME POST TIME POST TIME POST TIME feb-07 mar-07 abr-07 may-07 jun-07 jul-07 ago-07 sep-07 oct-07 Average 0,0081 -0,0392 -0,0106 0,0421 0,0119 -0,0022 -0,0152 0,0573 0,0454 SD 0,0427 0,0358 0,0537 0,0583 0,0472 0,0452 0,0419 0,0707 0,0697 T-STUDENT 1,7114 -9,8672 -1,7763 6,4908 2,2744 -0,4443 -3,2746 7,2923 5,8584 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 AIRWAE (ENE-SEPT 07) Beta : 0,99712218 ANNOUNCEMENT ANNOUNC. ANNOUNC. ANNOUNC. SALE POST TIME POST TIME POST TIME POST TIME ene-07 feb-07 mar-07 abr-07 may-07 jun-07 jul-07 ago-07 sep-07 Average 0,0123 -0,0279 -0,0072 -0,0398 -0,0174 0,0369 0,0622 0,0359 0,1192 SD 0,0459 0,0563 0,0582 0,0438 0,0402 0,0531 0,0667 0,0873 0,1264 T-STUDENT 2,4095 -4,4537 -1,1164 -8,1738 -3,8886 6,2478 8,3898 3,7026 8,4868 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 ENDEMOL (FEB-OCT 07) Beta : 1,015659 ANNOUNCEMENT ANNOUNC. ANNOUNC. ANNOUNC. SALE POST TIME POST TIME POST TIME POST TIME feb-07 mar-07 abr-07 may-07 jun-07 jul-07 ago-07 sep-07 oct-07 Average -0,0278 -0,0081 -0,0406 -0,0175 0,0369 0,0626 0,0352 0,1189 0,1007 SD 0,0566 0,0586 0,0444 0,0405 0,0535 0,0673 0,0878 0,1267 0,1126 T-STUDENT -4,4206 -1,2357 -8,2359 -3,8886 6,2099 8,3719 3,6087 8,4479 8,0480 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 1,99 Figure 6. Event-<strong>study</strong> results related to Dow Jones 87
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Case study: Downsizing strategy influence on the structure of the firm

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