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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Meghna Pharma, facing falling margins, decides to sell its loss-making API division to a competitor and use the proceeds to reduce debt and strengthen its core formulations business. It also trims several unprofitable product lines inside that core business. Which pairing of strategies best describes this?

The best description is divestment of the API division within an overall retrenchment approach. Selling one loss-making unit and cutting unprofitable product lines reduces scale and costs while strengthening the core. It is not liquidation, since the firm continues, and it involves no integration or expansion.

  1. ADivestment at the business level and retrenchment through cost and asset reduction overallCorrect
  2. BLiquidation of the whole firm and turnaround through pricing
  3. CBackward integration and stability strategy
  4. DConcentric diversification and expansion through merger

Explanation

Selling a division is divestment, a form of retrenchment. Trimming unprofitable lines and strengthening the core is also retrenchment, aimed at reducing scale and costs. Liquidation would mean selling off the entire firm, which is not happening, and no expansion or integration occurs.

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