Asset Divestiture at Homart Development Company

James C. Bean, Charles E. Noon and Gary J. Salton
Additional contact information
James C. Bean: Department of Industrial and Operations Engineering, The University of Michigan, Ann Arbor, Michigan 48109
Charles E. Noon: Department of Industrial and Operations Engineering, The University of Michigan, Ann Arbor, Michigan 48109
Gary J. Salton: Homart Development Company, Xerox Centre, Suite 3100, 55 W. Monroe, Chicago, Illinois 60603

Interfaces, 1987, vol. 17, issue 1, 48-64

Abstract: For Homart Development Company, one of the most important strategic issues is scheduling divestiture of shopping malls and office buildings. In the 1986 strategic plan, 170 assets were analyzed for possible divestiture over 10 years. The problem is complicated by requirements imposed by the parent corporation, Sears, Roebuck and Company, that Homart meet a minimum aggregate return on equity each year. All divestiture decisions are linked with these constraints. An integer programming model designed especially for problems of this structure was developed and coded. The first run of the model resulted in an additional profit of $40 million compared to the performance of the traditional techniques for solving the problem. Since the problems addressed by this model were strategic, results of the model changed the implemented policies at Homart's highest level of decision making. In particular, policies toward sales of assets at a loss and the relationships between shopping malls and office buildings were changed as a direct result of the model. This model is now institutionalized as a core element of a six-month strategic-planning cycle.

Keywords: decision analysis: applications; finance: investment criteria (search for similar items in EconPapers)
Date: 1987
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