The best break-ups & those set to split

Cable & Wireless

Cable & Wireless (C&W) can trace its history back to the 1860s - almost as far as Investors Chronicle (but not quite!) – when it was involved in laying the world's earliest communication network. So, no surprise that its business had become a somewhat anachronistic combination of emerging market cellular networks – mainly in the Caribbean – and sophisticated internet protocol business offerings in the UK, formed through the takeovers of Energis and Thus. These have now been respectively split into Cable & Wireless Communications and Cable & Wireless Worldwide.

■ C&W Communications is struggling to achieve growth as tourism dwindles in its key markets, but the shares offer a tasty yield for income seekers. C&W Worldwide's shares offer a nice yield, too, but its focus on data services for business means growth prospects are better.

Carphone Warehouse

As its name suggests, Carphone Warehouse began life as an early reseller of cellular phones, which because of the enormous batteries they needed tended to live in businessmen's cars. The growing popularity of mobile telecoms saw it become a nationwide high street retailer, a base it used to expand into providing its own household telecoms service, TalkTalk, and more recently a joint venture with US electrical retailer Best Buy to sell a wider range of gadgets from its stores. TalkTalk was spun into a standalone company in March, and the UK’s first big-box Best Buy store was launched in May.

■ TalkTalk is still growing strongly, both organically and through acquisition. And the smartphone boom is proving good business for Carphone Warehouse, while the combination with BestBuy will see it become a powerhouse in UK electronics to challenge the likes of DSG and Comet.

Liberty International

Liberty International was always a funny beast - on the one hand a collection of high-profile central London assets, including the eponymous West End department store and other prime sites in Covent Garden and Kensington; on the other, some large but not quite so aesthetically pleasing shopping centres in places such as Gateshead and Thurrock. These retail monoliths remain in the original Liberty Reit, now renamed Capital Shopping Centres, containing investment and development property valued at £5bn. The 81 London properties are now housed within a second standalone vehicle, Capital & Counties, which was valued at £1.24bn at the start of the year.

■ The demerger effectively gives investors the choice of two investments to suit their particular needs - with Capital Shopping Centres you get a straight rental income play with little growth potential, and with Capital & Counties you get more exciting development upside and income, too. Because of this, we'd favour the latter.

Petrofac

Petrofac was an unusual entity in the oil and gas business, in that as well as being a major provider of engineering and construction services to major oil companies, it also has its own interests in oil fields. These included fields in the North Sea which moved into production earlier this year, and which along with the neighbouring assets of Sweden's Lundin were spun into a new vehicle, EnQuest, in April. The new entity is now 45 per cent-owned by Petrofac shareholders, and the group said it would look to "harvest" further value from its upstream portfolio, Energy Developments, after getting its first demerger away successfully.

■ Petrofac has charted a steady course through the drilling downturn, thanks to the quality of its client-base, the breadth of services it offers and its growing order backlog. And EnQuest's North Sea focus is attractive given the resurgence of activity there in the aftermath of the Gulf of Mexico oil spill.

Set to split?

Even after the recent flurry of demerger activity, there are numerous companies that still operate with shades of conglomeration, and speculation that management may seek to unlock value through demergers is never far away. Here are a few highly speculative suggestions based on our own analysis.

BT

Management has not said as much, but BT increasingly looks like several distinct businesses, each with very different characteristics. On the one hand, there's the consumer-facing business selling telephony and an increasing volume of web-based entertainment services to UK households.

Then there's the local network itself, already operated within a separate business unit called Openreach and bound by competition regulation to offer network access to BT's competitors on an equal basis.

The third prong of the business is Global Services, which sells sophisticated voice and data to an increasingly international base of large corporate customers. In fact, it was cyclical hiccups at Global Services that saw the dividend slashed last year, causing uproar among long-suffering investors who’d invested in what had been a defensive, cash-generative telecoms operator.

Of course, BT has tried demergers before, including the spin-out of mobile business mm02 in 2002. Many at the time questioned the wisdom of selling the growth part of the business, and their criticism appeared justified as the renamed O2 went on to overtake BT as the UK's largest telecoms operator before being bought for £17.7bn by Spain's Telefonica. And without a cellular offering, BT's home phones business has since struggled to compete against the near ubiquitous use of mobile.

WHSmith

One analyst reckons the management team at WH Smith may be readying the business for a demerger of its high-street and travel businesses. There are several reasons why they could be on the money. For one, chief executive Kate Swann has turned to demergers in the past to unlock value. Although WHSmith eventually sold publishing arm Hodder Headline for £223m back in 2004, it had considered a demerger of the business earlier. And it did go down that route with its distribution arm, creating Smiths News as a standalone public company back in 2006, leaving the parent free to focus on its retail operation. The analyst thinks that, as the company starts to venture overseas again with outlets to be opened in Dublin and Muscat airports, there could be a case for splitting the high street and travel arms into two companies.

Associated British Foods

The Weston family don't generally like to give away too much control of their business empire, which includes a 55 per cent holding in UK food group Associated British Foods (ABF). But they do like to maximise the value of their companies, which is why we don't think a demerger of Primark should ever be ruled out.

The successful low-cost clothing retailer seemingly has little in common with the rest of the business, which is focused on food and ingredients and has almost entirely different customer base. And while Primark is on a fairly steady upward growth trajectory, its food businesses are much more exposed to commodity-related fluctuations, and therefore prone to uncertainty over the direction of profits. ABF has always shrugged off demerger chatter, pointing to the fact that the diversity that Primark added made the group more resilient to cyclical swings, and that ABF's cash flows had funded the development of the business. But Primark is certainly large enough to stand on its own two feet now.

Vedanta

Indian base metal mining group Vedanta has been prevented from demerging its various mining operations by shareholders once before, but in March it appointed bankers to have a second crack at spinning off its Orissa aluminium project into a separate business. Vedanta Aluminium would be worth $20bn (£13.2bn), and it is believed that if successful the next of its six units to be spun out would be its Zambian copper division.

Management has said that it will consider any restructuring that created shareholder value by separating assets into 'pure play' businesses - and Vedanta's unwieldy conglomerate structure is believed to be the reason why the group is discounted by the market, with a current market capitalisation of just $8.5bn, much lower than the suggested break-up value.