4 Corporate Breakups Currently in the Works
As businesses grow and flourish, they typically find ways to become bigger — through absorbing or buying competitors, investing in new areas to increase their market share, or simply by expanding the reach of their products and services. Recent trends have seen giant tech companies like Google and Facebook buy up and absorb nearly everything in sight.
But there are some big companies that are bucking that trend, and are instead opting to slim down.
There are some obvious upsides to expanding if you’re the CEO of a large company. Increased revenues, venturing into new areas that diversify and add more security to the business, even warding off would-be competition before they can gain any traction are all examples of why a company may look to expand. But contracting, or even splitting your company into two or three separate entities? Where’s the logic in that?
“If you have a corporate structure that isn’t working, you need to make a change,” Mike O’Rourke, chief market strategist with BTIG, an institutional brokerage firm in New York, told CNN. “Generally, breakups tend to create more value.”
O’Rourke isn’t alone in his thinking. “If a company has done everything they can do and Wall Street is still unwilling to give them the valuation they deserve, then splitting up could be called for,” says Jeffrey Saut, a market strategist for Florida-based Raymond James. “The parts are worth more than the whole. That’s always been the mantra.”
With that in mind, which companies are actually taking the fairly drastic steps towards corporate split-ups? Many have been rumored to be looking into it, but few actually pull the trigger. There are a few in the news currently, with calls for many other big companies — like Microsoft and IBM — to take the idea seriously as well.
So, which companies have decided to go through with a corporate break-up? Here are four currently in the headlines that are calling it splits.
The recent slew of corporate split-ups seems to have been kicked off by online auction site eBay, announcing that it would be spinning off its subsidiary, the immensely popular online payment system PayPal. As Forbes explains, the breakup seems to have been prompted by Paypal chief David Marcus’ departure for Facebook earlier this year, raising questions about how well Paypal would actually be able to flourish under its parent company.
“The transaction creates two pure-play industry leaders, each with significant scale and reach, in commerce and payments,” eBay’s statement to shareholders reads. “Led by two world-class management teams, eBay and PayPal will carry forward our focus on innovation and strong commitment to our customers.”
The two companies will naturally remain perfect complements to one another: one an online transaction service, the other a platform for online auctions and sales. With Paypal free from the restraints it may have been suffering from under the eBay umbrella, the company could take off even faster than it has been in the past few years.
2. Hewlett Packard
After 75 long years, Hewlett Packard has announced that it will be splitting up into two parts, in an effort to keep up with rapidly changing technology and industry trends in both the consumer and commercial hardware markets. The company will split into two distinct entities, “one comprising HP’s market-leading enterprise technology infrastructure, software and services businesses, which will do business as Hewlett-Packard Enterprise, and one that will comprise HP’s market-leading personal systems and printing businesses, which will do business as HP Inc. and retain the current logo,” a company release states.
“By transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders,” says CEO Meg Whitman. “It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders.”
The company, which was originally started in a garage in 1939, will see its biggest change since before World War II. In the wake of the news, The Wall Street Journal reports that shares spiked nearly six percent, lending credence to the notion that shareholders would be pleased with the news.
While not as high-profile as HP or eBay, online-security firm Symantec has also made a big announcement regarding changes to the company’s structure. The company — which is one of the world’s top security software developers — is reversing a trend of expansion, which it has subscribed to for several years. But following a reportedly extensive review of the business as a whole, the company’s brass decided to pull the trigger on the split.
“It has become clear that winning in both security and information management requires distinct strategies, focused investments and go-to market innovation,” said Michael A. Brown, Symantec president and CEO in a press release. “Separating Symantec into two, independent publicly traded companies will provide each business the flexibility and focus to drive growth and enhance shareholder value.”
Symantec will now become two companies, one with a focus on its security technology and another dedicated to storage.
Many people may be surprised to learn that Italian supercar maker Ferrari has been nestled under the Fiat corporate umbrella for awhile now, but that relationship is reportedly ending. Fiat — which also owns American-based car companies Chrysler, Dodge and Jeep — will allow Ferrari to become its own separate entity, news that has investors and shareholders clamoring. Not only that, but Ferrari will also open up shares to the public, with a total of 10% of the company’s ownership up for grabs.
“The separation of Ferrari will preserve the cherished Italian heritage and unique position of the Ferrari business and allow FCA shareholders to continue to benefit from the substantial value inherent in this business,” said John Elkann, Chairman of FCA, in a press release.
Fiat Chrysler Automobiles is the seventh largest automaker in the world, and recently made its debut on the New York Stock Exchange. By allowing Ferrari to make its own way, Fiat frees up considerable resources and capital to battle the company’s biggest competitors in a rapidly changing auto market.