Toshiba is preparing to split the business into three separate companies. Former US giant General Electric will do the same. Split two ads on Friday and Johnson & Johnson. Is the end of conglomerates coming?
We must first understand why companies make such a decision. The answer comes from a Toshiba manager earlier this month, quoted by Nikkei: “What makes shareholders happy? That’s what’s important.”
Markets often value large business groups less than the sum of their common parts, perceiving that there is inefficiency in their activities. The separation of Toshiba aims precisely to eliminate this and unlock the full value for shareholders.
The move also reflects the long-complicated relationship between Toshiba and its shareholders. Investor activists bought a stake in the company after a capital increase of 600 billion yen ($ 5.29 billion) in 2017, at the height of the crisis that shook the Japanese giant. When last year the company announced that it was investing 1 trillion. yen in strategic acquisitions and share repurchases, they said they had not received an explanation for the change in strategy and called an emergency meeting.
Nobuaki Kurumatani, then president and CEO, was concerned about the company’s long-term future, but shareholders are also interested in short-term returns. Kurumatani came down from the summit in April due to growing pressure. Toshiba remains in interim control to this day, and the vacuum created threatens the conglomerate’s investment decisions, which are key to growth.
In the US, meanwhile, General Electric plans to separate its medical device division in 2023, and in 2024 to separate its renewable energy, thermal energy and digital operations business. Earlier, the company sold GE Capital Aviation Services, which leased aircraft. GE, like Toshiba, has decided that keeping several businesses under one hat doesn’t make much sense in a rapidly changing business environment.
HP split in two in 2015 and the decision brought a higher overall market capitalization. DowDuPont split in three in 2019, but the score is comparable to before the move.
Meanwhile, Sony Group is taking a different direction in its attempt to cope with shareholder pressure. In 2013, the Third Point activist took a stake in the company and called for the spin-off of the entertainment business into a separate company. But Sony rejected the request, saying it was its broad portfolio that was a source of strength.
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