NEW YORK (AFP) – Three multinational giants – General Electric, Johnson & Johnson, and Toshiba – announced this week plans to split into multiple companies in a trend that companies hope will offer more growth opportunities.
It’s a move that has been largely forced on them by financial markets, analysts say.
The breakups “represent a trend line that’s been around for 20 years,” said Professor Michael Useem of the University of Pennsylvania’s Wharton School.
The big names joining the trend suggest that the giant, diversified conglomerate model “is clearly on the way out,” he told AFP.
Useem, who specializes in corporate restructuring, said the move would allow companies to “focus more on individual markets.”
Like J -an’s Toshiba, GE announced the split into three companies active in the aerospace, health and energy sectors.
Toshiba, which previously spun off several divisions, will abandon infrastructure and electronic devices such as semiconductors and exit the flash memory business.
Meanwhile, pharmaceutical giant Johnson & Johnson announced plans on Friday to outsource its consumer health division, which sells patches and Tylenol, from its pharmaceutical division, which includes the single-shot vaccine against Covid-19.
Last week, DuPont, which became an independent entity after separating from Dow Dupont in 2019, announced the exit from the industrial products business.
And IBM listed Kyndryl, which manages corporate IT infrastructures.
Gregori Volokhine, Portfolio Manager at Meeschaert Financial Services, said that this process is separating the wheat from the chaff.
He pointed out that GE has long been burdened by “black sheep” in the energy sector and its financial services division, which suffered from the 2008 financial crisis.
“All other industries have suffered,” he told AFP, not only in terms of stock market valuation, but “also in terms of c -ital allocation” between the segments.
Prof. Useem said the depressed share price amounted to a diversification penalty, reflecting the fact that analysts and investors can find it “intellectually challenging” to get a good look at the fortunes of huge and complex companies.
Mr Volokhine said it was better for companies to split up on their own terms and control the strategy “rather than being pressured by activist shareholders”.
But the breakups aren’t all fueled by financial struggles, said Jim Osman of The Edge, who specializes in spin-offs.
“J&J is a good company” with “two businesses that are market leaders … that they believe can thrive on their own,” he told AFP.
For companies like this, spin-offs are a way to add more value when the share price is already at record levels amid this year’s Covid-19 market rally.
“It’s a natural thing” when the market hits a peak and “the system doesn’t get any more growth,” he said.
Professor Howard Yu from IMD in Switzerland argues that some old corporations like Honeywell have been able to withstand the pressure because they have benefited from digital advances.
Unlike GE, this company was able to “demonstrate the ability to make data flow ubiquitous across business units.”
The same -plies to companies in the 21st century.
But Prof. Useem and Mr. Volokhine believe that even Amazon and Alphabets Google could feel the spin-off pressure.
Google’s autonomous auto business, Waymo, “could be valued at $ 100 billion ($ 135 billion),” said Volokhine.
“It’s a lot of money even for Google.”