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Explained: Why conglomerates are dead and giant companies are splitting

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GE, J&J and Toshiba were some of the biggest companies on the planet but have now decided that focus is a better strategy than scale.

Explained: Why conglomerates are dead and giant companies are splitting
General Electric, Johnson & Johnson and Toshiba separately announced last week that they would be splitting up their businesses into new corporate entities. The three companies were among the most iconic and influential conglomerates of the 20th and 21st century, but have now decided to break into smaller units.
What is a conglomerate? 
A conglomerate is a corporation that runs several different, often unrelated businesses through various subsidiary companies and entities.
Toshiba is a Japanese multinational conglomerate based out of Tokyo, with power, industrial and social infrastructure systems, elevators and escalators, electronic components, semiconductors, hard disk drives (HDD), printers, batteries, lighting, quantum cryptography and other IT solutions being some of its products and services. The company was founded nearly 150 years ago.
General Electric Company is an American conglomerate that ranked as the 33rd largest firm in the United States by gross revenue in 2020. The company dealt in aviation, power, renewable energy, digital industry, weapons manufacturing, locomotives, and venture capital and finance sectors before it divested in many of them. The company was founded 129 years ago.
Johnson & Johnson is one of the world's most valuable companies and one of the only two global companies to have an AAA credit rating from S&P, and also the 36th largest US company on the 2021 Fortune 500 list by total revenue. The company’s businesses include 250 subsidiary companies. The company was founded 135 years ago.
Divide and rule?
GE was the first company to announce its decision to split up its businesses. For most, GE’s announcement was the least surprising. The company had been divesting its assets in various sectors as a way of clearing the massive debt that it had racked up. Since 2015, the company has posted figures in the green in its balance sheet only twice. Even after the corporate reshuffle and divestments, GE will end 2021 with a gross debt of $70 million, according to estimates.
The corporation will be divided into three entities -- a renewable energy division by 2023, a healthcare division by 2024, with the GE name carrying on the aviation business. The energy and healthcare divisions will be tax-free spinoffs.
Toshiba announced on November 12 that it will be splitting up into three different companies as well. The new entities will be focused on the infrastructure and electronic devices sectors while Toshiba itself will hold on to flash memory company Kioxia Holdings Corp and Toshiba Tec Corp, which makes office equipment.
Toshiba is still trying to recover from its 2015 accounting scandal as well as the bankruptcy of subsidiary energy company Westinghouse in 2017. A failed takeover by CVC Capital Partners only made matters worse. Effissimo Capital Management, an activist investor group, was also instrumental in calls of divvying up the company as well.
"We are convinced that the business separation is attractive and compelling; it will unlock immense value by removing complexity," said Satoshi Tsunakawa, Toshiba's Interim CEO, President, and Chair.
For Johnson & Johnson, the split is not a result of corporate deficiencies, but to maximise profits instead. The company announced that it would be splitting up its consumer products division and the healthcare products and medical devices business.
J&J increasingly found itself running two very different businesses with very different expectancies and demands. The tens of thousands of lawsuits alleging that J&J’s baby powder causes cancer only highlighted the company’s need for splitting up.
"We think these have evolved as fundamentally different businesses," J&J Chief Executive Alex Gorsky said.
 
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