- [Narrator] In November, Johnson & Johnson,
and General Electric both announced
that they are splitting up.
Johnson & Johnson will break
into two separate public companies,
one focused on consumer health products
and the other on pharmaceuticals.
And GE will split into three companies,
centered on healthcare, power and aviation.
The splintering of these two heavyweights
is just the latest in a number
of big corporate breakups,
even as tech companies continue to consolidate.
- A lot of people are saying
that this may be the end or the death
of the corporate conglomerate as we've know it.
- [Narrator] Here's what led to the latest wave
of breakups, and what they could mean
for legions of shareholders
with a stake in these industry titans.
The breakup of conglomerates isn't a new phenomenon.
- The rationale for industrial conglomerates
in the first place was efficiency.
- [Narrator] Jason Zweig has been covering investing
and financial history for The Wall Street Journal
for over a decade.
He says the conglomerate model tended
to work for a while until the market got overheated.
- It stopped working
and people learned that these businesses rise
and fall together.
One of the things that happened in the 1980s
is that we had the rise of the leveraged buyout movement,
which today we would call private equity.
And so large funds were able
to get access to relatively cheap money,
which they could use to buy undervalued assets.
So a lot of conglomerates chose that particular time
to split up.
- [Narrator] Conglomerates continued
to decline in popularity in the 1990s and 2000s.
And then in 2008, this happened.
- [Reporter] The Dow tumbled more than 500 points
after two pillars of the street tumbled over the weekend.
- [Narrator] The 2008 financial crisis
marked a new shift for some
of the remaining industrial conglomerates.
Investors led a push to break up bigger companies
when the individual units seemed
to be underperforming independent rivals.
For example, Siemens,
the German multinational technology giant saw
its stock plunge more than 60%.
Under pressure from investors,
it shed its healthcare and energy businesses,
shifting from a conglomerate into a company focused
on higher margin software and technology.
This strategy worked.
Since then, Siemens' market capitalization
has surpassed its rival GE.
For years, GE, one of America's oldest industrial giants
had been struggling.
- The company was engaging in some aggressive accounting
in the late '90s
and into the beginning of the 2000s
that led to problems down the road.
GE Capital, its financial arm,
was taking risks that really did not pan out
during the financial crisis.
- [Narrator] And like Siemens,
GE faced pressure, both internally and externally
to split after parts of its business continued
to perform poorly.
- Certainly management was under enormous pressure
internally to do something.
Meanwhile, they were under enormous pressure
from activists, institutional investors.
- [Narrator] In the early 2000s,
GE began selling off portions of its business,
from insurance and appliances
to NBC Universal.
- General Electric is selling NBC Universal
to the cable TV giant Comcast.
- [Narrator] And its majority stake in oil and gas.
And on November 9th, 2021,
the company announced it would break up
its last three parts,
marking the end of an era for the industrial titan.
This was just days before Johnson & Johnson,
the world's largest health products company by sales
announced plans to break up as well
but it had different reasons.
Johnson & Johnson's CEO said the company decided
to split because the businesses,
customers and markets have diverged so much
in recent years,
a pattern that accelerated during the pandemic.
- I think they just reached the point
where like GE, they felt they could be more efficient
and each unit could get the full attention it deserved
if they split apart.
- [Narrator] Zweig says that when conglomerates split,
it's often due to external pressure.
- When things start to go wrong,
what people say is you could realize the value
that's locked up in these parts of the company.
So people will go from viewing it
as a unified whole
to viewing it as a set
of pieces that would do better
when they were broken off from the whole.
And that applies to institutional investors,
individual investors, competitors.
- [Narrator] An executive at Johnson & Johnson said
it will be in a better position standing alone
to make decisions and allocate resources.
So what do big corporate breakups mean for shareholders?
- Over the long run,
split ups do tend to create value
for investors in the surviving companies.
Now, whether it'll be true
in these particular cases is very difficult to say.
- [Narrator] For Johnson & Johnson,
investors can expect the second company
will have a new name
and the legacy business will continue to go by J&J.
For GE, current shareholders are likely
to receive shares of the new energy
and healthcare companies as dividends
when they spin off.
While the original company that remains
will focus on aviation.
- This may be the end
or it might just be the end of the beginning
but it's likely that we will see more
of these breakups.
- [Narrator] For many non-tech companies,
the future is looking smaller
and more specialized
but what it means for investors is yet to be seen.
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