Big companies are divided … Is the era of giants over?

Last week, three multinational giants General Electric, Johnson & Johnson and Toshiba announced plans to split them, a direction they hope will provide more growth opportunities.

Analysts say financial markets have forced companies to take this step.

Michael Useem, a professor at the Wharton School of the University of Pennsylvania, explained that divisional decisions “represent a trend that has existed for twenty years.”

He told AFP that the adherence of large companies to this trend is an indication that the huge and diverse group model is “definitely on the via of the disappearance “.

Osam, specialized in corporate restructuring, he noted that the move allows companies to “focus more on individual markets.”

Like Toshiba, GE has announced it will split in three separate activities, namely aviation, health and energy.

Toshiba, which has already separated several divisions, will focus on infrastructure and electronic devices such as semiconductors, and will move away from the memory devices segment.

Meanwhile, the giant pharmaceutical group Johnson & Johnson announced Friday that it will separate its subsidiary specializing in the sale of consumer health products, such as medical adhesive bandages and the pain reliever “Tylenol”, from the pharmacy division, which includes the vaccine against. Covid.

Last week, DuPont, which became an independent entity in 2019 following the split from Dow DuPont, announced it would be leaving the business of industrial products.

As for IBM, it has separated Kendrill, which manages the corporate IT infrastructure.

This process separates the grain from the straw, said Grigory Volokin, portfolio manager of Mischert Financial Services.

He noted that GE has been burdened over the years by the “pariah” divisions of the power unit and the financial services division, which were severely affected by the 2008 financial crisis.

“All the other branches have suffered” as a result, he told AFP, not only that in terms of value in stock exchange, but also “from the distribution of capital” between sectors.

Osim notes that the stock price crash was a diversification tax, reflecting the fact that analysts and investors may find “intellectual difficulties” in understanding the achievements and fortunes of large and complex groups.

Volukin said it is better for companies to split up on their own terms and control the strategy, “rather than being forced by active shareholders to do so.”

financial difficulties

But not all splits are due to financial hardship, says Jim Othman, a split specialist at The Edge research group.

“Johnson & Johnson is a good company,” he told AFP, “they have two business divisions that are market leaders (…) that they think can thrive separately.”

For companies of this type, splits are a way to increase their market value when stock prices are at levels. record, as it happened questyear during Covid.

“It’s the natural thing to do” when the market is at its peak and “you can’t get more growth within the system,” Othman explained.

Howard Yeo, professor at the International Development Management Institute in Switzerland, points out that some older groups like Honeywell have managed to withstand the pressure because they have invested in digital advancement.

Unlike GE, the company was in able to “demonstrate the ability to disseminate data in various areas of business”.

The same goes for 21st-century companies, such as “Amazon” or “Ali Baba” of China, which have benefited from “digital glue,” he said, referring to “Amazon” in cloud computing. online and purchase of content.

But Osim and Volukin believe that Amazon and Google’s Alphabet may also feel the need to split.
Volokin stated that Waymo, the company of auto self-driving vehicle from Google, could be valued at around $ 100 billion. “That’s a lot of money, even for Google,” he added.

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