Don’t Give Activists Cause to Dine on Your Breakup
Sprawling companies are a turnoff for investors who have to sit through their turgid results presentations. Add poor performance and the punishment is harsh.
Photographer: Bloomberg
Corporate breakups are costly, distracting and short on concrete business benefits. So why do investors and analysts keep pushing for them? Picture yourself fidgeting as a company presentation proceeds through weak results in countless countries, or twice switches gear to unpack three entirely unrelated businesses. You too would be praying for a big chunk of the company to just go away.
A breakup creeps onto the agenda when companies with assets that don’t necessarily fit together are perceived to be trading too cheaply. Investment analysts value each unit as if it was a standalone entity, add everything up and emphasize that the total is significantly higher than the firm’s stock-market capitalization. The difference must be a yawning “conglomerate discount.”