May 2005 
Volume 04, Issue 1 
Main Feature

What's in a name?

For subsidiaries such as Jeppesen, an awful lot

Why do companies like Boeing elect to let acquired companies operate as subsidiaries? In general, subsidiary structures can provide benefits such as financial advantages and legal protection. Yet one key reason for establishing a subsidiary relationship is to retain the power of a brand.

Because brands are built over time through reputation and customer experiences, they're valuable company assets. A strong, positive brand helps shape expectations of what kind of experience a customer will have when doing business with the company. It also melds public perceptions about a company and its products.

Indeed, Boeing's 2000 acquisition of flight information services provider Jeppesen demonstrates why sometimes it's best to keep an acquired company's brand separate.

With more than 70 years of performance, Jeppesen is seen as a leading provider of aeronautical information. Jeppesen President Mark Van Tine said Jeppesen has customers in all segments of aviation, and they operate virtually every kind of airplane flying. Jeppesen brand recognition spans the airline industry, business and general aviation, and the military as well. Putting the Boeing logo on flight navigational aids used by operators of other models could hurt the power of both companies' brands. In other words: Hypothetically, would the operator of an Airbus airplane be keen on using Boeing-branded items?

"Because of this, the neutral position we maintain as a subsidiary maximizes the value we bring to The Boeing Company," Van Tine said.

Other reasons companies in all industries may decide to keep an acquired firm as a subsidiary include

  • Taxes. Tax laws allow companies to offset profits in one part of a business with losses in another. If the new business does poorly, it mitigates risk for the parent company. This can ultimately help protect a company's credit rating—a factor very important in business. In addition, subsidiaries created in another country can shield the parent firm from foreign tax obligations and other burdens that may arise in doing business in the country.
  • Legal protection. Companies may acquire a firm that has additional financial or other risk. When established as a subsidiary, each business is protected from the legal liabilities of the other.
  • Flexibility. Acquiring a company and keeping it as a subsidiary gives the parent company the flexibility to sell the subsidiary later. Because the subsidiary is a separate legal entity, it's easier to divest down the line than if the acquired business were fully integrated into the main business.

—Debby Arkell

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