馃攳
Why Conglomerates Split Up | WSJ - YouTube
Channel: unknown
[0]
- [Narrator] In November,
Johnson & Johnson,
[2]
and General Electric both announced
[4]
that they are splitting up.
[5]
Johnson & Johnson will break
[7]
into two separate public companies,
[9]
one focused on consumer health products
[11]
and the other on pharmaceuticals.
[13]
And GE will split into three companies,
[16]
centered on healthcare,
power and aviation.
[19]
The splintering of these two heavyweights
[21]
is just the latest in a number
[23]
of big corporate breakups,
[25]
even as tech companies
continue to consolidate.
[28]
- A lot of people are saying
[29]
that this may be the end or the death
[32]
of the corporate conglomerate
as we've know it.
[35]
- [Narrator] Here's what
led to the latest wave
[37]
of breakups, and what they could mean
[39]
for legions of shareholders
[40]
with a stake in these industry titans.
[44]
The breakup of conglomerates
isn't a new phenomenon.
[47]
- The rationale for
industrial conglomerates
[51]
in the first place was efficiency.
[53]
- [Narrator] Jason Zweig
has been covering investing
[55]
and financial history for
The Wall Street Journal
[57]
for over a decade.
[59]
He says the conglomerate model tended
[61]
to work for a while until
the market got overheated.
[64]
- It stopped working
[65]
and people learned that
these businesses rise
[69]
and fall together.
[71]
One of the things that
happened in the 1980s
[74]
is that we had the rise of
the leveraged buyout movement,
[77]
which today we would call private equity.
[80]
And so large funds were able
[83]
to get access to relatively cheap money,
[87]
which they could use to
buy undervalued assets.
[89]
So a lot of conglomerates
chose that particular time
[94]
to split up.
[95]
- [Narrator] Conglomerates continued
[96]
to decline in popularity
in the 1990s and 2000s.
[100]
And then in 2008, this happened.
[102]
- [Reporter] The Dow
tumbled more than 500 points
[105]
after two pillars of the street
tumbled over the weekend.
[108]
- [Narrator] The 2008 financial crisis
[110]
marked a new shift for some
[112]
of the remaining industrial conglomerates.
[114]
Investors led a push to
break up bigger companies
[117]
when the individual units seemed
[118]
to be underperforming independent rivals.
[121]
For example, Siemens,
[123]
the German multinational
technology giant saw
[125]
its stock plunge more than 60%.
[128]
Under pressure from investors,
[130]
it shed its healthcare
and energy businesses,
[132]
shifting from a conglomerate
into a company focused
[136]
on higher margin software and technology.
[138]
This strategy worked.
[140]
Since then, Siemens' market capitalization
[142]
has surpassed its rival GE.
[145]
For years, GE, one of America's
oldest industrial giants
[149]
had been struggling.
[150]
- The company was engaging
in some aggressive accounting
[154]
in the late '90s
[156]
and into the beginning of the 2000s
[159]
that led to problems down the road.
[162]
GE Capital, its financial arm,
[165]
was taking risks that
really did not pan out
[170]
during the financial crisis.
[172]
- [Narrator] And like Siemens,
[173]
GE faced pressure, both
internally and externally
[176]
to split after parts of
its business continued
[179]
to perform poorly.
[180]
- Certainly management was
under enormous pressure
[183]
internally to do something.
[185]
Meanwhile, they were
under enormous pressure
[188]
from activists, institutional investors.
[192]
- [Narrator] In the early 2000s,
[194]
GE began selling off
portions of its business,
[197]
from insurance and appliances
[198]
to NBC Universal.
[200]
- General Electric is
selling NBC Universal
[203]
to the cable TV giant Comcast.
[206]
- [Narrator] And its majority
stake in oil and gas.
[209]
And on November 9th, 2021,
[211]
the company announced it would break up
[212]
its last three parts,
[214]
marking the end of an era
for the industrial titan.
[217]
This was just days
before Johnson & Johnson,
[220]
the world's largest health
products company by sales
[222]
announced plans to break up as well
[224]
but it had different reasons.
[226]
Johnson & Johnson's CEO
said the company decided
[229]
to split because the businesses,
[231]
customers and markets
have diverged so much
[233]
in recent years,
[234]
a pattern that accelerated
during the pandemic.
[237]
- I think they just reached the point
[239]
where like GE, they felt
they could be more efficient
[243]
and each unit could get the
full attention it deserved
[249]
if they split apart.
[251]
- [Narrator] Zweig says that
when conglomerates split,
[253]
it's often due to external pressure.
[255]
- When things start to go wrong,
[257]
what people say is you
could realize the value
[261]
that's locked up in these
parts of the company.
[265]
So people will go from viewing it
[267]
as a unified whole
[269]
to viewing it as a set
[271]
of pieces that would do better
[273]
when they were broken off from the whole.
[276]
And that applies to
institutional investors,
[279]
individual investors, competitors.
[282]
- [Narrator] An executive
at Johnson & Johnson said
[284]
it will be in a better
position standing alone
[287]
to make decisions and allocate resources.
[290]
So what do big corporate
breakups mean for shareholders?
[294]
- Over the long run,
[296]
split ups do tend to create value
[300]
for investors in the surviving companies.
[304]
Now, whether it'll be true
[306]
in these particular cases
is very difficult to say.
[310]
- [Narrator] For Johnson & Johnson,
[311]
investors can expect the second company
[313]
will have a new name
[314]
and the legacy business
will continue to go by J&J.
[318]
For GE, current shareholders are likely
[321]
to receive shares of the new energy
[323]
and healthcare companies as dividends
[324]
when they spin off.
[326]
While the original company that remains
[328]
will focus on aviation.
[330]
- This may be the end
[331]
or it might just be the
end of the beginning
[334]
but it's likely that we will see more
[338]
of these breakups.
[339]
- [Narrator] For many non-tech companies,
[341]
the future is looking smaller
[342]
and more specialized
[344]
but what it means for
investors is yet to be seen.
[347]
(playful music)
Most Recent Videos:
You can go back to the homepage right here: Homepage