Around the globe, laboriously assembled conglomerates are now dividing like mature amebas into their constituent parts. Examples include Fortune Brands, Kraft Foods, McGraw-Hill, Sara Lee, Telecom Corp of NZ and Tyco International, but there are many more. Indeed, Ryan Mendy of specialist research firm the Spinoff Report claims there are some $900 bn worth of demergers, involving more than 100 companies worldwide, on the 2011 calendar.
Time Warner/AOL stands like a huge monument on the corporate horizon, a memorial to the 97 percent of investor value lost in action. Shareholder activist Bob Monks who was, in his own words, kicked off Tyco’s board for disagreeing with its M&A strategy, offers a characteristically cynical view. ‘By and large, the last 30 years have been characterized by the vast enrichment of middlemen and the impoverishment of the principals,’ he laments. ‘That’s because the pattern that goes from conglomeration to spin-off has fees on both sides.’
Monks doesn’t have much time for the building of vast, unfocused conglomerates. ‘It’s never been demonstrated that a conglomerate organization adds value over time,’ he explains. ‘And the divestitures that are now taking place in Tyco are just getting it back down to where it was 15 years ago, before the massive conglomeration carried out by the former CEO Dennis Kozlowski.’