Divestment Strategy

Abstract

The divestment the LEGOLAND Parks product line in 2005 was a key element in LEGO Groups multi-faceted approach toward reversing a deteriorating financing performance trend that began in 1998 and continued for six years thereafter. LEGO’s increasingly complex product offering and over-diversification into non-core business activities, including theme park ownership and management, were viewed as primary causes for the company’s consistent lack of profitability. The executive team provided a candid assessment of LEGO’s unsatisfactory performance and that changes to its strategic business model were necessary for both its future growth and continued existence (The Lego Group, 2003).

LEGO Group: Enhancing Profitability Using Divestment Strategies

LEGO Group’s decision to sell its LEGOLAND franchise illustrates both the underlying motivation for a company to engage in a product divestment strategy but, more importantly, underscores the significant financial implications that type of strategy can have. LEGO had faced financial pressures in the late 1990’s, as heavy discounting in the toy business and unprofitable new business ventures, contributed to multiple years of net losses for the Danish toy company. By the end of fiscal year 2003, global net sales had fallen by 22 percent overall, 35 percent in the US and 28 percent in Asia; culminating in a pre-tax loss on earnings of DKK 1.4 billion (The Lego Group, 2003). In effect, LEGO was faced with a critical decision regarding LEGOLAND’S viability in a declining market; attempt to generate profit during declining demand or divest its interests in that product (Ferrel, 2014).

The executive leadership determined that several key initiatives were necessary to insure the continued existence, independence and long-term viability of LEGO company. A key component of these initiatives included a strategic divestiture of the LEGOLAND theme parks which constituted a non-core, and expensive, business...