Big, it seems, is no longer beautiful. In recent weeks, markets have seen a flurry of high-profile moves by and calls for large companies to split or spin off their smaller divisions. Although the means differ, the goals are the same: free up capital, unlock trapped potential and wait for the share price to re-rate.
Conglomerates have led the charge. Within the past month, Johnson & Johnson (US:JNJ), Toshiba (Ja:6502) and General Electric (US:GE) – once America’s most valuable company – have each confirmed plans to break up. With one eye on rival Siemens (Ger:SIE) – which has itself gone through a similar carve up process –GE’s chief executive, Larry Culp, said his group’s move would “heighten focus and accountability”, to the relief of long-suffering activist Trian Partners.
So runs the latest leg in the long-running debate over conglomerate value. Proponents point to the benefits of diversification, industrial and operational synergies, and the ability to compete without becoming dominant (and potentially anti-competitive) in any one sector. Critics argue conglomerates lack specialisation, move slowly, and emphasise management above innovation.