Corporate Finance, 4th Edition

Epilogue – Finance and Strategy

It's only au revoir!

We sincerely hope that after reading the 50 chapters of this book, you have not come away with the impression that finance is the most important function of the company!

Experience has shown that groups managed exclusively and excessively on the basis of finance cannot survive. For example, Havas, the leading European media group in the early 1990s (television, radio, advertising hoarding, publishing, professional press, etc.) disappeared in less than eight years, condemned to immobility by the dictatorship of EPS, by regular capital dilutions of subsidiaries aimed at generating exceptional profits that were supposedly recurrent, and by financial shareholders that were too preoccupied with neutralising each other to see that, in a changing world, Havas alone had remained static. Hanson in the UK and ITT in the USA experienced the same fate and for the same reasons.

On the other hand, an industrial strategy without healthy finances is also doomed to failure. This is what happened to RBS after its acquisition of ABN AMRO that was mainly financed by debt. Pooling together two second-tier investment banks with some complementary strengths (LBO financing, emerging markets, etc.) to try to create a top-tier one was not a bad idea in itself – but it was in the autumn of 2007! The financing resulted in too low a solvency position for the combined group, which was only sustainable in a very good economic environment.

This does not ...