Divide and rule ?
More and more large groups are deciding to operate splits in order to earn more or to better adapt to investors' expectations.
The latest example, the pharmaceutical company Johnson & Johnson announced on Friday, November 12, its intention to split into two listed entities.
One will take care, in particular, of selling its anti-Covid vaccine, while the other will supervise the distribution of general public products, such as shampoos.
Two days earlier, the American conglomerate General Electric had unveiled its intention to split into three distinct groups.
This historic giant of the American economy which, since its beginnings in 1892, had never done anything but gain weight, finally decided on a weight loss program to create an entity specializing in electricity, another in renewable energies and a third in health.
Series splits
In Japan, it is another historical group - the computer equipment manufacturer Toshiba - which made public, on November 8, its plans to split into three.
After more than 150 years of buying out all-round competitors, Toshiba now sees the future smaller with a company specializing in electrical infrastructure, another dedicated to computer products such as laptops and a final one to manufacture the much coveted semiconductors.
If the past week has been particularly busy for announcements of splits, it "is symptomatic of a deeper trend," says Jean-Jacques Friedman, director of investments for the management company Vega IM, contacted by France 24.
In recent months, IBM, for example, has separated from its branch specializing in the management of IT infrastructures, the textile distributor L Brands has allowed its lingerie brand Victoria's Secret to stand on its own stock exchange wings, while the German Siemens has created separate entities for its activities in health and energy.
Three of the ten largest spin-offs of the past 40 years - Johnson & Johnson, IBM and General Electric - took place in 2021, Reuters notes.
"We are starting to talk again, as in the 1980s and at the end of the 2000s, of the decline of large conglomerates," said the Financial Times.
The financial markets also seem delighted with this trend, since each group announcing a split sees its stock market share jump by several points, notes the American news channel CNN.
In the age of the Internet giants which, like Facebook or Google, keep getting bigger and bigger by buying up competitors and small start-ups, this multiplication of splits can surprise and appear to be a movement against the tide. .
Giants who give birth to other giants
However, it would be an indirect consequence of the establishment of these new tech monopolies, perceived as economic and democratic dangers by governments around the world, assures the Washington Post. For the American daily, the serial revelations of recent weeks on Facebook have shown the financial markets that we often do not know what is happening within these multinationals and that it could be riskier to invest in these large opaque structures rather than smaller entities with a more clearly defined mission.
"Dividing us into three will allow us to be more transparent and better assume our responsibilities towards investors," admitted Larry Culp, CEO of General Electric.
But for Jean-Jacques Friedman, of Vega IM, this "Facebook effect" only "plays at the margin" on the desire of large groups to divide in order to please investors.
These giants do not give birth to mice that are so much more transparent.
They more often give birth to other equally opaque giants.
This is the case, for example, of IBM, whose new company specializing in the management of IT infrastructures - Kyndryl - already employs 90,000 people worldwide and has a turnover of nearly 20 billion dollars.
In a sense, these large groups operate splits to rule better.
They are creating new very specialized and already powerful entities, which can "quickly buy real small start-ups, which allows these groups to establish oligopolies", summarizes Jean-Jacques Friedman.
This mode of splits also makes it possible to find new ways of making more money for shareholders.
The stock market is already going through a very good period, and there is not much room for maneuver to further increase the share price of these multinationals.
Hence the idea of splitting into several new entities.
This "can allow the markets to better value certain activities which would otherwise go unnoticed within a large group", notes Peter Choi, analyst at the Swiss asset management firm Vontobel, interviewed by the Washington Post.
Crumbs for the little ones
Johnson & Johnson can thus hope that an independent division to market its vaccines will earn it more on the stock market than if it were drowned in the ocean of its other activities within the group. Other giants, like Google, might be tempted to do the same. "It is estimated that Waymo - the autonomous car division of Google - would be worth at least $ 100 billion if it were listed separately from the Internet giant," notes Gregori Volokhine, asset manager for the international financial services firm Meeschaert Financial Services, interviewed by the American site Tech Xplore.
It is also a way for all these behemoths to take advantage of another trend on the financial markets: the creation of thematic funds.
"There are more and more of them in very different sectors - renewable energy, health, etc. - and they will be more inclined to invest in specialized entities than in large groups which do a bit of everything", summarizes Jean- Jacques Friedman.
For him, all these splits are not necessarily intended to create new entities listed on the stock exchange.
"This trend is also part of the movement to privatize the financial market," he said.
These are the large boxes which, like certain cigarette manufacturers, have decided to withdraw from public stock market indices "the least politically correct activities", explains this specialist.
With the rise of so-called responsible investments in the stock market, "there are whole areas of activity which remain profitable but no longer attract investors, except outside the public financial markets", he summarizes.
Large groups - as for example in fossil fuels - can thus isolate their less ethically acceptable activities, withdraw them from the Stock Exchange and offer them to private investors.
For all these large groups, these series splits therefore represent a new means of attracting as much money as possible from investors.
And to leave only a few crumbs for small start-ups.
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