McKinsey on Finance

Trading the corporate portfolio 1

Perspectives on
A systematic approach to buying and selling assets can deliver superior
Corporate Finance
shareholder returns.
and Strategy
Do carve-outs make sense? 6
Number 2, Autumn
Yes, but not for the reasons you might think.
2001

Prophets and profits 11

Executives should be wary of bending strategy to suit the wayward
long-term earnings forecasts of equity analysts.

Shopping in the Internet bargain basement 15

Beleaguered dot-coms can represent real bargains for savvy acquirers—
and real lemons for buyers who don’t scope out the territory.

Viewpoint: Whither globalization? 18

The war on terrorism may change the shape and pace of economic
integration. But the fundamental human forces that drive it will not
be dislodged.
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Trading the corporate portfolio
A systematic approach to buying and selling assets can
deliver superior shareholder returns.
Jay P. Brandimar te, William C. Fallon, and Rober t S. McNish
C orporate strategy planners have never
had it tougher. Companies are bracing for
the worst economic year in more than a
decade. Disruptive technologies and new
competitors continue to proliferate. Capital
markets are a storm of discontinuity,
allocating capital among winners and losers,
encouraging the creation of corporations, and
removing them when they no longer perform.
In this environment large companies are
particularly vulnerable.1 Even as some
corporate icons have relied on their sheer
size and momentum to survive, they have
not created superior shareholder value. One
approach to countering such turbulence, our
research shows, is to emulate the dynamism
of capital markets within individual
companies. Companies that “trade” their
corporate portfolio—developing a balanced
M&A program that actively allocates capital
to acquire new businesses, encourages their
growth, and then sloughs them off in a
timely fashion—can create superior
shareholder returns.
Active, balanced M&A
programs outperform
We identified 200 of the largest companies in
1990 that were still trading independently
in 2000 and examined all their acquisitions
and divestitures during that period that were
more than $100 million.2 We ranked and then
compared the performance of the most active
one-third of the group, based on total number
of completed acquisitions and divestitures, to
the least active, or passive, one-third. We
further differentiated among active companies
that primarily acquired,3 primarily divested,4
or acquired and divested assets in relative
balance.5
Our findings indicate that companies with
active, balanced programs of acquisitions and
divestitures create more shareholder value than
those that transact few deals. Over the ten-
year period we examined, these companies
had 30 percent higher total return to
shareholders (TRS) than did companies with
passive M&A strategies. Furthermore, among
active companies, those that pursued a
balanced strategy had 17 percent higher TRS
than did those that primarily acquired and a
32 percent higher TRS than those that
primarily divested (Exhibit 1).
Consider Texas Instruments. From 1990 to
1994, TI made only two significant
acquisitions—one in information engineering
and another in travel products—and divested
an industrial controls company. In 1995,
however, the company began aggressively
managing its portfolio, completing nine
significant acquisitions over the next five years
and becoming a segment-leading player in core
analog, DSP (Digital Signal Processing), and
wireless components businesses. It also shed
three successful but noncore businesses in
custom manufacturing and defense electronics.
Trading the corporate por tfolio | 1

Exhibit 1. Among active strategies, a balanced
approach creates the most value
Value of $100 invested 1/90–12/99 1
Active vs. Breakdown
passive of active
approaches approaches2
$459
$353 $392
Passive Active Divestor Acquirer Balanced
Average
number of
transactions 2 15
1
Risk adjusted for beta.
2
Active portfolios split into those that primarily divest,
primarily acquire or pursue a balanced approach.
Source: McKinsey analysis
Suddenly, TI’s profile changed. Its market cap
increased from $7 billion in the fourth quarter
of 1994 to $60 billion in the second quarter
of 2001. Between 1995 and 2000, its average
annual TRS was 48 percent, compared to
approximately 22 percent for the S&P 500 in
the same period.
Or consider the experiences of J. P. Morgan
and Primerica, now Citigroup. In 1990,
J. P. Morgan was one of the most valuable
and well-respected financial institutions in
the United States. Its $8 billion market cap
ranked it second among U.S. financial
institutions and it boasted long-standing
relationships with some of the world’s most
respected companies. By contrast, Primerica,
with revenues of $5.2 billion and a market
cap of $2.5 billion, was smaller and focused
on lower-middle-class consumer finance.
By 2000, however, Primerica had made 11
significant acquisitions, including major
brokerage and investment banking businesses
like Salomon Brothers and the brokerage unit
of Shearson Lehman. Its ten major divestitures
2 | McKinsey on Finance Autumn 2001
included both less profitable businesses and
noncore assets like health insurance, mortgage
banking, and long-term care. For its part, J. P.
Morgan spent the decade attempting to grow
organically, making no significant acquisitions
or divestitures.
$519
$442 Where are they now? Citigroup increased its
revenues to more than $82 billion by the end
of the decade, with a market cap of nearly
$265 billion. J. P. Morgan, on the other hand,
was unable to turn its strength in commercial
lending into a top-tier spot in lucrative
investment banking. Morgan underperformed
its peers and the S&P 500, and its market cap
ranking tumbled. In 2000, Chase Manhattan
Bank took it over.
Managing a balanced portfolio
These anecdotes illustrate a modern-day fact
of corporate life: nearly every large
corporation is actually a portfolio containing
multiple, potentially independent business
units. In a world of increasingly efficient
capital markets, multibusiness companies no
longer add value simply by providing access to
capital. They must add value by applying their
unique set of corporate skills or competencies
to each business unit in their portfolio.
These core competencies include those that
drive the performance of existing businesses,
such as financial performance management,
operations planning and management, or
marketing. They also include those that
identify new sources of growth, such as
mergers, acquisitions, alliances, product/
customer strategy, or new product
development.
Naturally, the skills needed to create value in
any single business unit change as the unit
evolves. A new, growing business unit needs
Exhibit 2. Four-phase business life cycle
help in marketing, product development, and
fund-raising, while a mature business unit in a
highly competitive industry needs help cutting
costs, slimming capital, and restructuring Build Expand Operate Reshape
operations. Our research points to value-
Objective Establish Grow the Drive Rationalize
creation levers and critical skills required at a viable top line efficiency industry
four key stages of a business’s life cycle: business structure

building a business, expanding it, operating it, Creation

and reshaping it (Exhibit 2).
Value- • Innovation, • Replication • Cost and • Consolidation,
creation pioneering and capital value chain
Because a company’s core competencies are levers extension reduction influence

relatively static and the skills it needs at each

stage of the life cycle unique and dynamic, few
companies excel at managing business units
across all stages. Therefore, as a business
unit’s value-creation needs evolve, its parent
company typically faces three strategic
choices. First, it can allow the needs of the
business unit to drift away from the
company’s competencies, obviously leaving
value on the table. Or it can try to transform
its competencies to suit the future needs of the
business—an option that is difficult and, our
research suggests, justified only when the
majority of business units in the portfolio
simultaneously require the same skills to be
changed. Finally, it can sell the business, which
is often the right option.
Winning M&A strategies
Just as each phase of the business life cycle has
a winning operating strategy, each phase also
has a winning M&A strategy (Exhibit 3). The
challenge for executives is to adopt an M&A
strategy consistent with the life cycle focus of
business units in each of the four phases.
Build
In the build phase, companies need to be able
to quickly assemble the business model, laying
Critical • R&D • Marketing • Operations • Re-
skills • Business • Financing • Control engineering
development
Source: McKinsey analysis
down frequent, small bets. Often, alliances
and joint ventures are of equal importance to
acquisitions. Proprietary deal flow is critical,
as is high-volume deal screening and creative
deal structuring. The imperative of market
forces means that the many small bets that
have been made must be reviewed frequently
and divested quickly.
This is what Cisco achieved via its “M&A as
R&D” approach. Cisco acquired gap-filling
technology to assemble a broad line of
network-solution products, investing $24
billion to acquire 71 companies from 1993 to
2001. During this period, Cisco’s sales
increased from $650 million to $22 billion,
and its market cap increased from $6 billion
to $120 billion. Nearly 40 percent of Cisco’s
current annual revenue comes directly from
companies it acquired since 1993. Even with
the recent market downturn, Cisco’s
annualized TRS from 1991 to the first quarter
of 2001 was 57 percent, contrasted with 16
percent for the S&P 500 for the same period.

Trading the corporate por tfolio | 3

 acquisitions into significant product lines, even
Exhibit 3. Winning M&A strategies across
life cycle phases as it weeded out businesses that no longer fit.
Its annualized TRS from 1991 to the first
quarter of 2001 was a strong 19 percent.

Build Expand Operate Reshape

Operate
M&A Assemble Replicate Stay focussed Improve
objective the business across on efficiency/ industry In the operate phase, companies must remain
model products cost ‘sweet structure
and spot’ focused on their cost/efficiency ratio, scouring
markets
Creation
the deal flow for opportunities to acquire
poorly operated businesses with solid market
Acquisition • Many small • Numerous • Poorly • Roll-ups presence. Successfully integrating operations is
strategy bets midsize operated • Dis-
• Generation bolt-ons to products integration often critical to driving cost and capital
of own cross- and brands and re-
deal flow fertilize integration reductions. The operator should divest when
• Specialization products/ of the value its cost advantage is not sustainable or the
markets chain
industry requires restructuring.
Divestiture • Frequent • Divestiture • Divestiture • Divestiture
strategy review of when when cost to operator
bets efficiency advantage if structure
• Divestiture of trumps not restored Industrial products and hand tool
completed growth sustainable • Else, manufacturer Danaher, for example, has
business divestiture
models to LBO for aligned its M&A strategy with its skill at
“harvest”
operations. The company acquires niche
Critical • Deal flow • Deal • Operational • Insight to
M&A screening structure integration spot trends industrial brands with undermanaged
skills • Creative
structuring
and
managerial
• Deal
structuring
operations and applies its operating know-how
integration to make substantial improvements. Since
to capture
synergies 1985, Danaher has made more than 30
Source: McKinsey Analysis
acquisitions in the process and environmental
controls segment and seven acquisitions in the
hand tools segment. These segments now
account for 58 percent and 42 percent of
Expand
sales, respectively. Danaher’s annualized TRS
In the expand phase, the name of the game is from 1991 to the first quarter of 2001 was 28
to rapidly replicate the successful business percent.
model across as many markets, geographies,
and products as possible. Often, this means
Reshape
“bolting on” midsize firms to cross-fertilize,
especially when deal structuring and Reshaping a mature industry suffering from
integration can capture revenue synergies. As overcapacity typically calls for a roll-up
soon as the business reaches the point of consolidation strategy, acquiring a major
inflection where cost and capital efficiency competitor, or reinventing the business by
trump top-line growth, the expander should be disintegrating and reintegrating the value
looking to divest. For example, Johnson & chain. If growth and profitability can be
Johnson created value for shareholders through improved (i.e., returned to the operate phase
the 1990s by developing many small of the business life cycle), the company may

4 | McKinsey on Finance Autumn 2001

once again emerge as the natural owner of the
business. Otherwise, the restructured business
may be suitable for “harvest” in a leveraged
buyout. Superior insight into industry trends
and distinctive deal-structuring skills are a
must to thrive in this game.
In 1994, for example, San Antonio–based
Clear Channel had 35 radio stations, nine TV
stations, and no billboard or concert venue
assets. When the Federal Communications
Commission in 1996 lifted restrictions on
radio ownership, however, the company began
an acquisition spree. With 1,200 stations Clear
Channel is today the largest owner of radio
stations in the United States, as well as the
largest billboard owner with 770,000 outdoor
ad displays, and is both concert promoter and
venue operator. By consolidating the moribund
radio industry, Clear Channel improved scale
and focus. It achieves cost savings by
delivering common content (e.g., national
radio shows) across geographic boundaries
and spreading advertising across radio and
billboards nationwide. Clear Channel’s
annualized TRS from 1991 to the first quarter
of 2001 was 54 percent.
The right mix of acquiring and divesting also
varies across the four stages. Our analysis
suggests that successful builders and
expanders pursue M&A strategies that are
weighted toward acquisitions. By contrast, the
best strategy for operators and reshapers is a
relatively balanced program of acquisitions
and divestitures. In fact, in the build and
expand phases, companies with acquisition-
focused strategies had shareholder returns
almost five times greater than companies
following a balanced M&A approach.
However, in the operate and reshape phases,
companies following a balanced strategy had
shareholder returns almost six times greater
than companies following an acquisition-based
strategy. This stands to reason, since builders
and expanders are assembling small businesses
into larger businesses. Once a business unit
has reached a relatively stable size, the
successful operator and reshaper are more
likely to pursue a “balanced diet” in terms of
deal quantity.
Matching the dynamism of markets in a
corporate setting is not easy. But companies
that pursue active, balanced M&A strategies
matched to their core skills and the life cycle
stage of their business units have the best
chance to thrive in an ever more tempestuous
market. MoF
Jay Brandimarte (Jay_Brandimar te@McKinsey.com)
is a consultant and Bill Fallon (Bill_Fallon@McKinsey
.com) is a principal in McKinsey’s New York office.
Rob McNish (Rob_McNish@McKinsey.com) is a
principal in the Washington, DC, office. Copyright
© 2001 McKinsey & Company. All rights reser ved.
The authors wish to thank Michael Patsalos-Fox for
his contribution to this ar ticle.
1
Richard Foster and Sarah Kaplan, Creative Destruction, New
York Doubleday, 2001.
2
Size of company determined by market capitalization.
Independent companies defined as those that had not
themselves been acquired. Acquisitions and divestitures
included straight sales, car ve-outs, spin-offs, and leveraged
buyouts.
3
Companies with a ratio of acquisitions to divestitures
greater than 3:1 (active M&A strategy).
4
Companies with a ratio of acquisitions to divestitures less
than 1:1 (passive M&A strategy).
5
Companies with a ratio of acquisitions to divestitures
between 1:1 and 3:1 (balanced M&A strategy).
Trading the corporate por tfolio | 5
Do carve-outs make sense?
Yes, but not for the reasons you might think.
André Annema, William C. Fallon, and Marc H. Goedhar t
M any CEOs consider equity carve-outs
(Exhibit 1) too good to miss: a financial
instrument that increases company stock price
without sacrificing control of a valuable
business unit. However, analysis we conducted
of 200 major carve-outs across the world over
the past ten years1 shows that this perception
is not entirely accurate. We found that the vast
majority of carve-outs ultimately lead to
changes in corporate control, and very few
produce significant share price increases for
the parent. Most actually do not create
shareholder value unless the parent company
follows a plan to subsequently fully separate
the carved-out subsidiary.
This is not to say that carve-outs, executed
wisely, are not useful tools in an executive’s
restructuring toolbox. They are certainly
popular, with average yearly volumes of more
than $20 billion between 1995 and 2000. It
also cannot be denied that some high-profile
carve-outs have imbued this financial device
with a kind of star quality. When Kmart
announced its 52 percent carve-out of
Borders, Kmart stock went up 13.2 percent
during the week around the announcement,
generating $803 million in value for its
shareholders. The same effect was evident in
3Com’s 20 percent carve-out of Palm, which
increased stock prices by 17.6 percent and
generated $2.7 billion for shareholders.
The fact is that carve-outs can be valuable—
but for reasons other than those that many
6 | McKinsey on Finance Autumn 2001
have believed. Executives evaluating a carve-
out for one of their business units must think
beyond the question of a simple boost for
their stock price. Rather, to achieve the value
that carve-outs can deliver, executives must be
prepared over time to give the carved-out
business full independence.
Ready or not, here comes
independence
The idea of maintaining indefinite corporate
control over carve-outs is nearly always a
fallacy. Our findings indicate that only 8
percent of carve-outs continue to exist as
Exhibit 1. Definitions
Carve-out: The flotation of a minority stake of usually
less than 20 percent (in the United States) of a
subsidiar y’s shares through an IPO for cash
Spin-off: Full flotation of a subsidiar y by distributing
subsidiar y shares in the form of dividends to existing
parent shareholders
Split-off: Full flotation of a subsidiar y by offering
subsidiar y shares to existing parent shareholders in
exchange for parent shares
Tracking stock: Special class of parent stock for
which the dividends “track” a specific subsidiar y’s
economic performance, either through an IPO for
cash (tracking stock car ve-out) or through a
distribution to parent shareholders as dividends
(tracking stock spin-off)
 Exhibit 2. Carve-out dynamics—typical trajectories
Number of car ve outs, announced prior to 1/1/98
203
79
22
All carve - Acquired or Buy
outs merged back
39% 11%
Source: McKinsey analysis
clearly parent-controlled public companies
after five years, that is, where the parent owns
more than 50 percent of shares (Exhibit 2).
Nearly 40 percent are ultimately acquired by
third parties, and an additional 31 percent see
the parent stake reduced to less than a 25
percent minority.
This result should not come as a surprise. Even
a minority initial public offering provides
high-growth businesses with their own
transaction currency for acquisitions, equity
funding for internal growth, and their own
shareholder and legal responsibilities, all of
which lead over time to the dilution of parent
company stakes. For example, Siemens’s stake
in its carved-out semiconductor subsidiary
Infineon was reduced from 71 percent to 50.9
percent after Infineon’s secondary share
offering in June this year. The offering was
7
62
33 8%
Free float 50–75%
Free float <50% 8%
Delisted Independent Parent controlled
(Free float >75%) (Free float <75%)
3% 31% 16%
floated to raise funding that Siemens would
not provide. Siemens has since announced that
it intends to further reduce its stake.
Some carve-outs are taken over by leading
players in their industry that hope to realize
significant synergies with their own
businesses. For example, Citicorp snapped up
Ford’s financial services carve-out, Associates
First Capital, and Morgan Stanley merged
with Sears’ Dean Witter Discover carve-out
into MSDW.
Of course, as long as the parent has majority
control, it can usually block any undesirable
takeover such as a direct buy by a head-to-
head competitor. By carefully planning a
carve-out’s trajectory, parent companies can
ensure that a business unit has the opportunity
to prove its viability in the market before
Do car ve-outs make sense? | 7

Exhibit 3. Cumulative two-year post-transaction TRS
Percent
Subsidiaries Parents
Average return 26.7%
Average— –10% –21.5%
index adjusted1
Median—
index adjusted2
–24.9% –8.5%
1
Benchmark index is S&P 500 for U.S. companies and
Datastream's European Market index for European companies.
2
Benchmark index is median estimated S&P 500 index for all
companies.
Source: McKinsey analysis
exposing it to the full brunt of market forces
and susceptibility to takeover.
However, parent companies that obstruct
carve-outs on their way to independence and
use their majority stake to exercise managerial
control in the long run risk eliminating the
very benefits the carve-out was intended to
deliver. They also risk precipitating further
conflict as subsidiary executives formally
pursue the best interest of their own company
and shareholders. Consider US oil exploration
and production (E&P) company Vastar, which
was carved out by ARCO in 1994. At one
point, Vastar found itself bidding against
ARCO for the same E&P projects. ARCO
resolved this potential conflict not by
preventing Vastar from bidding but rather by
shifting its own focus to international projects
and leaving the US market for its subsidiary.2
Such conflicts can easily intensify over time as
the distance increases between parent and
carve-outs, especially since carve-outs often
operate in different, higher-growth industries
than their parents do. In our sample, revenues
8 | McKinsey on Finance Autumn 2001
for carve-outs grew at an average annual rate
of about 13 percent for the first two years
after the IPO, compared with around 5
percent for their parents.
15.8%
When carve-outs make sense
Another chimera associated with carve-outs is
that they routinely deliver big boosts in share
price. Our research shows that in the short
term only 10 percent of carve-outs resulted in
a share price increase of more than 12 percent
for the parent. Over the long term, most
carve-outs actually destroy shareholder value,
as shown by negative, risk-adjusted
performance measures (Exhibit 3).
Shareholder value typically increases only
when both parent and subsidiary perform
better as independent companies, and only
when parent companies aim for full separation
of the subsidiary—through a subsequent spin-
off or full public offering of subsidiary shares.
Carve-outs can create value for shareholders
from enhanced strategic freedom and access to
independent funding. As part of a parent
group, subsidiaries are often restricted in
choosing customers, suppliers, funding, and
transaction opportunities. For example, prior
to its carve-out and subsequent spin-off, one
telecom equipment provider had virtually no
access to customers for its hardware products
that were competitors of its parent. Similarly,
Palm was in a better position to close strategic
alliances with AOL, Nokia, and Motorola
after its carve-out from 3Com. These strategic
and funding benefits can be fully captured
only when parent companies are prepared to
reduce control over time.
Furthermore, carve-outs can create value
through better alignment of managerial
incentives and more streamlined decision
 Exhibit 4. Long-term TRS of carve-outs varies by trajectory

Transactions announced before 1/1/98; median TRS index

Median
excess return
over S&P 500
160.0 Percent
150.0 Independent
(Free float +26
140.0 > 75%)
Total return index

130.0

120.0 Acquired –17

110.0 Buy-back/
delisted –17
100.0
Parent
90.0 controlled
–32
(Free float
80.0 <75%)

70.0

60.0
0 2 4 6 8 10 12 14 16 18 20 22 24
Months after IPO

Source: McKinsey analysis

making within the carved-out business. As tax-free distributions to the parents’

management is freed from the parent’s
decision process, decision making in the
subsidiary can become less complex and more
effective. Moreover, listing equity publicly
enables management to provide high-powered
incentives in the subsidiary through stock and
stock option plans, which make up a
significant part of total compensation to
carve-out executives.3
In the best cases, parent company executives
anticipate and plan full independence for
carve-outs. In the United States, a carve-out
followed by a spin-off usually also enables a
parent company to divest a subsidiary without
incurring the capital gains taxes that it would
typically face in a trade sale or full IPO. For
example, the carve-outs Guidant, Palm, and
Lucent were subsequently spun off by parents
Eli Lilly, 3Com, and AT&T, respectively, in
shareholders. Indeed, carve-outs that
eventually become independent from their
parents as a result of a subsequent full spin-off
or public offering of the parent’s remaining
stake have significantly outperformed the
stock market as a whole in the first two years
after their flotation (Exhibit 4).
You can’t go home again
A carve-out is not likely to be a good option if
there are still operating or strategic synergies
with the parent group. Most synergies
between parent and subsidiary will be lost
after a carve-out as the two entities operate at
the requisite arm’s length. Legal protections
for the public minority shareholders typically
demand that all transactions with the parent
company take place at fair market terms and
conditions as if it were between two

Do car ve-outs make sense? | 9


Shareholder value typically increases
only when both parent and subsidiary
perform better as independent
companies, and only when parent
companies aim for full separation of
the subsidiary—through a
subsequent spin-off or full public
offering of subsidiary shares.
independent entities. This greatly reduces the
flexibility and ease with which parent and
carve-out can cooperate to capture any
synergies.
Although many parent executives anticipate
that they still have a “strategic option” to buy
back the public minority stake if the carved-
out business is successful, the facts show quite
the opposite. Carve-outs that were bought
back by their parent companies show very low
long-term stock market performance. Buying
back a minority stake to recover significant
synergies between parent and subsidiary, or to
compensate for lagging subsidiary share
prices, can also prove expensive for the parent.
In one example, after US biotech company
Genzyme carved out its testing division, IG
Laboratories, Genzyme realized that it was
still very dependent on IG Laboratories to test
its products. When it found IG to be less and
less willing to accommodate its needs,
Genzyme ultimately had to buy back the
public stake in IG from the capital market.4 In
another example, following its 1997 carve-out
of Hertz, Ford revised its corporate strategy to
focus on becoming the global leading
consumer company for both automotive
10 | McKinsey on Finance Autumn 2001
products and services.5 Under the revised
strategy, Ford considered Hertz to be one of
the world’s strongest automotive service
brands and an integral part of this strategy. To
enhance the operating flexibility between itself
and Hertz, Ford bought back the public stake
in Hertz at a 46 percent premium over the
$24.25 September 20, 2000, share price,
reflecting a $224 million acquisition premium
over Hertz’s stand-alone value.
Carve-outs remain a useful financial tool. But
corporate executives need to avoid illusions
about what carve-outs can deliver. Carving
out even small stakes of subsidiaries is likely
to lead to complete and practically irreversible
separation. Companies that do not plan for
such complete independence for their carved-
out subsidiary or even try to reverse the carve-
out are likely to end up destroying shareholder
value. MoF
André Annema (Andre_Annema@McKinsey.com) is a
consultant and Marc Goedhart (Marc_Goedhar t@
McKinsey.com) is an associate principal in
McKinsey’s Amsterdam office; Bill Fallon
(Bill_Fallon@McKinsey.com) is a principal in the New
York office. Copyright © 2001 McKinsey & Company.
All rights reser ved.
1
Source: Securities Data Corporation global database.
Transactions analyzed were those exceeding $50 million
between Januar y 1990 and May 2000.
2
Patricia Anslinger, Sheila Bonini, and Michael Patsalos-Fox,
“Doing the spin-out,” The McKinsey Quar terly, 2000 Number
1, pp. 98–105.
3
Patricia Anslinger, Sheila Bonini, and Michael Patsalos-Fox,
“Doing the spin-out,” The McKinsey Quar terly, 2000 Number
1, pp. 98–105.
4
Patricia Anslinger, Sheila Bonini, and Michael Patsalos-Fox,
“Doing the spin-out,” The McKinsey Quar terly, 2000 Number
1, pp. 98–105.
5
Ford Chief Financial Officer Henr y Wallace, December 2000.
Prophets and profits
Executives should be war y of bending strategy to suit the wayward long-term
earnings forecasts of equity analysts.
Marc H. Goedhar t, Brendan Russell, and Zane D. Williams
E quity analysts make their living
predicting the future of corporate
earnings. Yet while capital markets consider
the accuracy of analyst forecasts variable at
best, many corporate executives feel pressure
to reach or even beat these projections. They
often go to great lengths to satisfy Wall Street
expectations in their financial reporting and
even in long-term strategic moves. Academics
call this motivation “earnings management,”
and it has drawn increasing attention from
regulators and other market observers. Arthur
Levitt, former chairman of the Securities and
Exchange Commission, expressed concern that
the practice “may be overriding long-
established precepts of financial reporting and
ethical restraint.”1
So how good are the analysts at predicting
earnings and setting forecasts that, whatever
their flaws, serve as an important benchmark
of the current and future health of companies?
To answer this question, and to explore
whether there are patterns in analyst forecasts
that might enable us to better interpret their
projections, we examined aggregate corporate
earnings forecasts for companies on the
Standard & Poor’s 500 index between 1985
and 2001.2 Our research shows that analyst
forecasts are most often notably
overoptimistic, particularly in periods of
declining economic growth. The longer the
term of the forecast, the greater the degree of
overestimation one usually finds. Moreover,
our analysis shows that capital markets see
through these overoptimistic analysts’
projections, making them even more
questionable as earnings per share (EPS)
targets for corporate executives.
Optimism on Wall Street
No question, forecasting earnings with any
degree of accuracy one, two, or even three
years into the future is difficult. But if the
unpredictable nature of companies’ fortunes
and the fallibility of human foresight were the
only factors in play, one might expect that any
inaccuracies in broker forecasts would be
fairly randomly spread, canceling one another
out over time.
This is not what the record shows, however.
In fact, our examination of the forecasts
revealed three clear patterns (Exhibit 1). First,
at the aggregate level, analysts almost always
overestimate corporate profits. The gap
between forecast and reported earnings can be
wide. On average during the period 1985 to
2000 the aggregate earnings forecast
overestimated corporate profits by more than
13 percent. Forecasts exceeded actual EPS by
22 percent at three years out, 18 percent at
two years, and 10 percent at twelve months
ahead of the fiscal year end.3 Second, the
degree of overestimation is generally higher
the further out the forecast is made. Typically
forecasts are then revised downward until the
Prophets and profits | 11
 Exhibit 1. Aggregate EPS forecasts for S&P 500 companies

80.00

70.00 2003

60.00 2002
Lines illustrate analyst
forecast EPS over time
for each year 2000
50.00 2001
EPS (US cents)

1999
1997 1998
40.00 1996
1995

1994
30.00
1993 Squares indicate realized
EPS for each year
1988 1989 1992
20.00 1990
1991
1987
1985 1986
10.00

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Date of forecast

Source: McKinsey analysis

forecast is roughly in line with the eventual average of 11 percent a year while the average
reported earnings, probably as a result of analyst forecast showed 22 percent. Over
guidance by corporate executives. Finally, time, a reasonably consistent pattern emerges:
forecast errors are typically larger in periods when economic growth accelerates, the size of
of declining economic growth, suggesting that the forecasting error declines, but when
analysts are lagging in revising their forecasts economic growth slows, the error increases.4
to reflect new economic conditions.

Overshooting occurs in all sectors

Since aggregate earnings growth over time
must approximate growth in the real economy The phenomenon is not limited to companies
overall, we looked at the relationship between or industries that are rapidly growing and thus
earnings, earnings forecasts, and US economic more prone to excessive optimism on the part
growth. Obviously, as economic growth cycles of analysts. We examined a sample of 14
up and down, the actual earnings reported by specialty chemical companies that have grown
S&P 500 companies will occasionally coincide very slowly over the past decade—with sales
with analyst forecasts, for example, for 1988 increasing less than 3 percent per year. Even
and 1994–1997. More frequently, though, with this slow growth, analysts were prone to
forecasts are too high; between 1985 and overestimate earnings and then reduce their
2000, earnings for the S&P 500 grew by an forecasts in the last months prior to

12 | McKinsey on Finance Autumn 2001

announcement. As Exhibit 2 shows, analyst
estimates declined in 9 of the 12 fiscal
years for which data was available and fell
by an average of 7 percent over even the
last 12 months prior to the end of the
fiscal year.
Analysts also forecast five-year EPS growth
rates for these specialty chemical companies,
with a median forecast consistently
approaching 12 percent per year. Just as
consistently, these companies delivered growth
significantly below analyst estimates. In fact,
they never exceeded the five-year growth fore-
casts (Exhibit 3). And although actual growth
in the sector continues to decline dramatically,
analysts are still forecasting future growth
rates near 12 percent until 2005.
What to expect in
the current downturn
We are currently in that phase of an economic
cycle where economic growth, at best, has
slowed and where, for many companies,
earnings are in decline. The forecast for 2001
fiscal year as of September predicts EPS for
the S&P 500 of $0.53, a decline of about 8
percent from the level achieved in the previous
year. However, the earnings forecasts for the
next two years still include growth in excess
of 15 percent.
Are these analyst forecasts reasonable?
Forecasts for nominal US gross domestic
product (GDP) growth for 2002 and 2003
were around 5 percent in September.5 Since
1985, S&P 500 earnings growth has been on
average only 3 percent above GDP growth. A
difference between S&P 500 earnings and
GDP growth of more than 10 percent for the
next two years therefore seems quite
exceptional, if not unreasonable.
Exhibit 2. 12 month EPS forecasts for specialty
chemicals companies
Forecast EPS, last 12 months of fiscal year
2.5
1996 1998
2 2000
1995 1997 1999
1.5
1994
2001
1992 1993
1
1990
1991
0.5
0
Jan 90 Jan 91 Jan 92 Jan 93 Jan 94 Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01
Source: Zacks Investment Research, Inc.
What earnings expectations do the capital
markets really take into account? The pre–
September 11 level of the S&P 500 seems to
have reflected market expectations of growth
well below analyst forecasts. As of August 31,
the median price-to-earnings ratio of the S&P
500 was 17, which we calculate to be
consistent with long-term EPS growth between
5 and 7 percent. A market-implied long-term
EPS growth in this range is also more
reasonable, considering historical experience.
As prior McKinsey research has indicated,6
long-term growth in earnings for the market
as a whole is unlikely to be significantly
different from growth in GDP. Real GDP
growth has averaged 3.5 percent over the past
70 years, which would indeed be consistent
with nominal growth of around 6 percent
given current inflation rates of 2 to 3 percent.
Analysts, too, will ultimately lower their
forecasts as they pick up on the lower
Prophets and profits | 13
 attention from efficiently running existing
Exhibit 3. Five-year EPS forecasts for specialty
chemicals companies businesses to chase transactions designed to
boost EPS. For the same reasons, managers
Median EPS growth over 5-year periods should not invest time developing accounting
and funding method solutions just to stay on
14.00%
Forecast
track for analyst EPS forecasts.
EPS growth
12.00%
It is important to note that analyst forecasts
10.00%
are more reliable in the months immediately
8.00%
preceding earnings announcements. At
6.00% that point they are typically considered by
4.00%
investors and corporate executives alike to
be actual targets and incorporated in market
2.00%
pricing. Indeed, historical evidence suggests
0.00%
Actual that markets are right in taking this view:
EPS growth
–2.00% forecasts three months prior to EPS
–4.00%
statements have an average error rate lower
1989– 1990 – 1991– 1992– 1993 – 1994– 1995 – 1996 – 1997– 1998 – 1999 – 2000 – than 5 percent. Not unexpectedly, earnings
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
announcements that do not meet short term
Source: Zacks Investment Research, Inc. forecasts are likely to surprise the markets
and impact share price. MoF

economic outlook that is already reflected in

market pricing. Marc Goedhart (Marc_Goedhar t@McKinsey.com) is
an associate principal in McKinsey’s Amsterdam
office, Brendan Russell (Brendan_Russell@McKinsey
Implications for
.com) is a consultant in the London office, and Zane
corporate executives
Williams (Zane_Williams@McKinsey.com) is a
Managers should not necessarily feel pressured consultant in the Washington, DC, office. Copyright
to deliver against longer-term analyst growth © 2001 McKinsey & Company. All rights reser ved.
forecasts, as these typically reflect a significant
upward bias. Nor should they consider these
forecasts to be “capital market targets.” 1
Remarks at the Economic Club of Washington, April 6, 2000.

Indeed, the market most likely does not expect 2

We examined the market-weighted aggregates of earnings
them to do so; capital markets have typically forecasts, compiled monthly by Institutional Brokers
Estimates System.
already incorporated future forecast revisions
3
Forecast errors are measured as actual earnings minus
into the current share price.
forecast earnings divided by actual earnings.
4
The correlation between the absolute size of the error in
In fact, if managers pursue unrealistic EPS forecast earnings growth and the 12-month trailing industrial
growth to meet longer-term analyst production data is a negative 0.56.
projections, there is a real risk they will 5
Source: The Economist Intelligence Unit, September 2001.
actually destroy value if they engage in high- 6
Tim Koller and Zane Williams, “What happened to the bull
risk, high-growth projects or shift their market?” McKinsey on Finance Number 1, p. 6.

14 | McKinsey on Finance Autumn 2001

Shopping in the Internet bargain basement
Beleaguered dot-coms can represent real bargains for savvy acquirers—
and real lemons for buyers who don’t scope out the territor y.
David H. Dor ton, C. Brent Hastie, and Patrick Q. Moore
B uy cheap, the saying goes , and you get
cheap. In what is shaping up as a dismal
year for the Internet sector, at least 450
Internet companies closed their doors during
the first nine months of 2001, nearly twice as
many failures as in all of 2000.1 As valuations
plunged, failing dot-coms have become
acquisition targets for better-positioned
companies eager to take advantage of bargain-
bin prices. Investors, many of them
traditional, off-line companies, have poured
billions into acquiring almost 1,000 different
Internet assets and properties so far this year.
In comparison to the same nine-month period
last year, the average dollar value of each
transaction has dropped, but the total number
of transactions has actually increased by about
40 percent—and the figures are projected to
grow by year’s end.2
But acquirers rummaging through the
Internet’s bargain basement should temper
their enthusiasm with caution. The spectrum
of options to choose from is much broader
than typical M&A, and there is much less
data to help sort it out. Think about how
many start-ups there were in each major
e-tail category alone, for example. How does a
potential acquirer know it is picking the one
deal that has real assets? Unfortunately, these
acquisitions are relatively small and can
easily fall below the radar of established
M&A departments. Most targets do not have
I-banks, either, to shop their assets in this fire
sale. More than in typical M&A, it is critical
that potential buyers thoroughly understand
the complexities of an opportunity before
completing a deal, both in valuing intangible
assets and in capturing potential synergies.
Shop carefully, even when
time is short
Companies looking to take advantage of the
bargains must guard against allowing a feeling
of urgency to lead them into a bad investment.
With sources of funding disappearing and
companies on the brink of insolvency, Internet
companies hurrying to liquidate may not be
entirely candid about their financial status.
Acquirers should be on the lookout for hidden
liabilities that would destroy the value of an
acquisition. For example, close examination of
one dot-com found that more than half of its
accounts receivable were to other cash-
strapped dot-coms, and it had hidden
liabilities in ongoing service contracts,
equipment leases, and software licenses.
Combined, the company would need 60
percent more cash than it had estimated to
return to profitability.
Moving fast may make sense in some cases,
for example to reach an agreement before a
potential acquisition heads into insolvency, but
companies must not give short shrift to
standard M&A best practices. This is
especially true when it comes to evaluating
Shopping in the Internet bargain basement | 15
tangible and intangible assets. The few
tangible assets an Internet company may have,
such as customized e-commerce hardware and
software, are often too difficult and expensive
to integrate with existing systems. Key
personnel may leave before an acquirer can
convince them to stay, taking with them
crucial knowledge of software codes.
Intangible assets are even more difficult to
value and may be worth little or nothing to an
acquirer. Brands, customer relationships, and
talent have been among many Internet
companies’ core assets. But how can an
acquirer evaluate an Internet brand, for
example, when so many are suddenly available
and so few have been around long enough to
build up solid brand equity?
Similarly, while acquiring existing customer
relationships may be tempting, the usefulness
of customer lists is questionable. Privacy
groups fighting to prevent companies from
selling customer information are not the only
concern. Factors such as nontransferable
customer contracts, poor customer quality, or
low visitor-to-buyer conversion rates are also
obstacles. For example, one on-line health
player purchased a major competitor
expecting to broaden its customer base.
However, postmerger analysis revealed
significant customer overlap, dramatically
decreasing the value acquired.
Thoroughly understand where
value will come from
In order to understand clearly the value of a
potential merger, companies must incorporate
postmerger management planning from the
beginning, just as in more traditional mergers
and acquisitions, including critical input from
the teams that would be responsible for
16 | McKinsey on Finance Autumn 2001
integrating assets. They must also structure
each deal to minimize the potential risks that
often accompany bankruptcy, such as talent
flight, deterioration of customer relationships,
or lawsuits by creditors or other parties.
Particularly in the Internet sector, success
hinges on the acquirer’s ability to be creative
in considering the full slate of deal options.
For example, one travel start-up headed to
insolvency seemed at first glance to have little
to offer. But a closer look by an opportunistic
incumbent uncovered favorable terms for
reservation processing that the start-up had
been granted by an established player. Since
the contract was transferable, it was worth
$10 to $20 million to the established
acquirer—well above the actual purchase price
for the company.
Plan an Internet strategy
Established incumbents that carefully identify
and pursue specific assets to support a strong
existing Internet strategy are the most
successful acquirers. Targeting specific assets
rather than buying an entire company
increases the chance of success by minimizing
risks associated with costs, complexity,
personnel, vendor relationships, and other
potential liabilities. Many successful deals
have not only reduced time-to-market or
development costs but have also generated a
unique and proprietary advantage that
increased entry barriers for competitors.
Electronic commerce—one of the first sectors
to collapse—has yielded several successful
transactions. For example, one major retailer
acquired specific key assets of its bankrupt on-
line competitor in a series of separate
transactions, improving both its off-line and
online operations. More than $40 million of
inventory was purchased for $5 million; the
trademarks, logos, URLs, and other intellect-
ual property were purchased for $3 million,
and several months later the distribution and
fulfillment operations were purchased for a
fraction of the original investment.
The acquirer was able to leverage these
bargain assets almost immediately into
incremental sales and profit. And by focusing
on complementary assets rather than on trying
to acquire and fix the failed company as a
whole, the retailer was able to improve its
chances for success and increase its return on
investment. In fact, the company felt the brand
name of the defunct e-tailer to be so valuable
that it relaunched the brand less than a year
later. The relaunched site already represents
40 percent of the retailer’s total on-line sales,
and the retailer expects to break even on the
investment in less than a year.
Another successful strategy has been to
acquire all the specific assets necessary to
create a complete, market-leading offer. For
example, Homestore.com, a leader in the on-
line real estate market, carried out a systema-
tic acquisition program or “roll up,” targeting
weaker players to build economies of scale
and expanding the company’s service offering
and revenue sources. Homestore identified real
estate listings as a critical, scarce resource in
its industry’s value chain. Its control of
listings, bolstered by key acquisitions of
languishing dot-coms, provided improved
control over an expanded range of listings to
close future deals on attractive terms.
The results have been impressive.
Homestore.com has grown into one of the
Web’s top 25 most-visited destinations, leading
its industry segment in visitors for more than
two years.3 This market leadership has
By focusing on complementary assets
rather than on trying to acquire and
fix the failed company as a whole, the
retailer was able to improve its
chances for success.
translated into significant sales growth—
expected to grow over 100 percent in 2001—
and positive operating cash flows.4
Unfortunately, Homestore has not been
immune to the events of recent months, and
its market valuation has declined significantly.
Distressed assets are usually cheap for good
reason. Finding companies that retain value in
the midst of the Internet stock collapse is not
easy, but it is possible. The key to finding the
best values is a rigorous application of M&A
fundamentals combined with a thorough
understanding of the Internet’s distinctive
characteristics. MoF
Dave Dorton (David_Dor ton@McKinsey.com) and
Brent Hastie (Brent_Hastie@McKinsey.com) are
associate principals in McKinsey’s Atlanta office,
where Patrick Moore (Patrick_Moore@McKinsey.com)
is a consultant.
The authors wish to thank David Ernst for his
contribution to this ar ticle.
Copyright © 2001 McKinsey & Company. All rights
reser ved.
1
Webmergers.com; “Q3 repor t: M&A down 38 percent—
shutdowns hit 12-month low.”
2
Webmergers.com; “Q3 repor t: M&A down 38 percent—
shutdowns hit 12-month low.”
3
Tim Haran, “Homestore.com raises projections,” CBS
Marketwatch, July 25, 2001.
4
Homestore press release, October 15, 2001.
Shopping in the Internet bargain basement | 17
 Viewpoint
Whither globalization?
The war on terrorism may change the shape and pace of economic integration.
But the fundamental human forces that drive it will not be dislodged.
Mar tin N. Baily
I s globalization still inevitable? For more
than a generation the world’s economy has
been on a seemingly inexorable march toward
tighter economic, political, and social
alignment as people, goods, and capital
became ever more mobile. Yet even before the
September 11 terror attacks on the United
States, a backlash was brewing against
globalization’s dislocating effects, even among
some who understand the benefits of trade
and investment. The terror attacks and their
aftermath, replete with the specter of a long-
running conflict between Islamic
fundamentalism and the modern economy,
quickly sparked a rethinking of convictions
about globalization’s forward momentum.
Executives plotting their companies’ strategies
on this unforeseen landscape may well have to
recalculate the speed and direction of trade
and economic liberalization. And they will
certainly have to factor in new costs, barriers,
and uncertainties. But they should also take
reassurance from the fact that the fundamental
forces that helped globalization take firm root
and grow will secure its progress, through this
crisis and beyond.
Globalization sounds clinical, yet in the final
analysis it is about the impulses of institutions
and people. It is about the desire of companies
18 | McKinsey on Finance Autumn 2001
to earn profits. The choices savers seek to earn
a high return on their assets. The decision a
consumer makes to buy a Mercedes rather
than a Cadillac. Or to buy a Big Mac. Unless
people live in North Korea or Cuba (and even
in such isolated corners of the global economy
the question is not really about whether
change will come, but rather when), consumers
and business leaders will continue to be
exposed to new products and best practices
from other countries and cultures. The
pressure of demand from consumers and the
pressure of unexploited profit opportunities
will always wear away at barriers to
globalization and the spread of new ideas.
Mutually assured growth
During the 1990s, after the Cold War’s bipolar
ideological conflict gave way to broad
economic competition, increasingly low-cost
technology created enormous profit potential
for companies entering new markets. So did
the practice of applying successful business
systems outside their home markets.
McDonald’s, for example, began the decade
with about 3,000 overseas restaurants but
ended it with nearly 15,000—surpassing even
its count of domestic US restaurants. No
company, it seemed, could resist tapping the
opportunities from global expansion.
Companies with a strong competitive
advantage will continue to benefit by
exploiting their advantage worldwide.
International comparisons carried out by the
McKinsey Global Institute have suggested that
an important contributor to higher levels of
productivity is global competition against best
practice companies, which increases the
intensity of competition and forces companies
to innovate or be driven out rather than
hunker down in protected local markets. In
turn, technology development depends on
finding global markets to justify the risky
investments required.
Globalization has also contributed to
economic growth more broadly as
relationships among economies grew. Key to
the US economy’s extraordinary economic
performance in the 1990s were openness,
mobility, and the benefits of globalization,
factors that were to some degree adopted by
regional economies everywhere. Most
economists believe that the US economy, now
in a period of cyclical weakness, will make a
strong recovery, and the same dynamism that
accelerated globalization in the 1990s will still
be strong in the next decade. Technology will
continue to pierce borders, support trade
among people, and offer economic choices
that keep globalization advancing.
Bumps in the road
This isn’t the first time globalization’s
momentum has been challenged. Financial
crises in Asia, Latin America, and the former
Soviet bloc during the late 1990s, for example,
exposed structural weaknesses that shook
world markets, exposed vast instabilities, and
called into question beliefs about the
durability of globalization approaches like
Asia’s “forced march” industrialization.
Of course, the imponderables are quite
different in a conflict where cruise missiles,
commercial airliners, and postal envelopes can
assume a horrifying lethal equivalence. In the
short run, at least, the conflict will slow the
pace of globalization and influence the tactics
that companies will implement to cope.
For one, consider that a major thrust of US
and Western foreign policy has been to
encourage economic liberalization, pushing
globalization forward. With the focus now on
fighting terrorism, it will simply be harder for
institutions such as the International Monetary
Fund and the World Trade Organization to
pressure governments to liberalize. Many of
those governments will now be in position to
use their role as a political and military
coalition partner with the United States to
bow to local protectionist interests and resist.
Obstacles to globalization will break down
more slowly, even in the United States and
Europe.
The very nature of globalization will also
change. Various financial crises had already
altered the growth prospects and relative
attractiveness of different regions, but
selecting the right markets for expansion has
become even more important. Having a strong
global brand, especially a strong American
brand, is suddenly less attractive. As brands,
Coke and Big Mac are still massively valuable,
but the future may involve more alliances and
increased effort to preserve local brand
identities. Understanding and managing
political constraints always was important; it
is now even more so.
The terrorist attacks will have more concrete
effects as well, the most significant being an
increase in uncertainty and risk. Insurance
premiums have never reflected the possibility,
Whither globalization? | 19
for example, that airlines and skyscrapers
might be destroyed by terrorists. Now they
do. One of the problems in getting the
economy running smoothly again is that
insurance premiums have soared, particularly
for airlines. And the insurance against terrorist
attacks will not go away for a while, if ever,
so it will be a bit more costly to fly and run
airports. Even with government help in
disaster insurance coverage, it will be less
attractive to invest in tall towers or visible
attractions easily identifiable as American.
The probability of default on high-yield debt
has also sharply increased in many industries.
The beleaguered telecom industry aside, the
trend is notable in aerospace, services, and
nondurable consumer goods. Blue-chip
corporations also now face higher premiums
on borrowing costs, paying 2.5 percentage
points above Treasury rates, compared to 2.15
percentage points prior to the attacks and
1.25 percentage points in 1999. While most of
the rise in the risk premium was in the market
prior to September 11, the attacks have made
things a bit worse. This rise in the risk
premium affects all borrowing but at the
margin is likely to have its largest impact on
funding for global investments.
Then there is the certainty of a higher
“security tax.” It was known for some time
that security at US airports was dreadful, but
no one really believed it would matter, at least
not on the scale of September 11, and no one
wanted to pay the bill for a better system.
Now we know better. Yet the issue of security
extends well beyond the airline sector. Private
companies will have to strengthen security.
Executives may wait longer for visas, and their
travel may be otherwise impeded. Manu-
20 | McKinsey on Finance Autumn 2001
facturers will have to hold larger inventories
as trucks endure longer waits to enter the
United States from Canada and Mexico.
Yet these new barriers can be overcome. Most
of the increase in borrowing costs was the
result of the economic downturn, not directly
related to the attacks. A strong economic
recovery should bring borrowing costs back to
normal or close to it. On the security side,
innovation and the benefits of widespread use
will bring costs down as well. As with air
bags, introduced with a high cost per bag,
many people will complain about paying a
“safety tax.” Today mass production has
sharply lowered the cost, and people buy cars
with multiple air bags. Best practice
approaches to security will emerge and
address many of today’s issues, with only a
slight cost to productivity.
Most important, the future of globalization
will depend more heavily than before upon
the willingness of populations and policy
makers around the world to embrace it. The
impulse to turn inward will have greater
appeal, threatening to restrict the flow of
capital and people and slowing not only the
pace of globalization but also the pace of
economic growth. But the countervailing
force of consumers and companies lined up
behind the inherent freedom of choice it offers
will prove too powerful to resist, ensuring that
the vital opening of the global economy
continues. MoF
Martin Baily, a McKinsey alumnus, is senior fellow at
the Institute for International Economics and former
chairman of the White House Council of Economic
Advisers. Copyright © 2001 McKinsey & Company. All
rights reser ved.
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