Are we witnessing the death of old-fashioned conglomerates in Europe?

General Electric recently re-ignited speculation the company could be the next big conglomerate to break-up, with CEO John Flannery, admitting that the company is “looking aggressively” at a spin-off or other ways to get the most out of its power, aviation, and healthcare units.

“I would categorize it as an examination of options and it’s (the) kind of thing that could result in many, many different permutations, including separately traded assets really in any one of our units, if that’s what made sense,” said Flannery during a conference call in late-January.

GE isn’t the only company showing a wavering faith in the almighty conglomerate. Dow Chemical and Dupont are still trying to sort the logistics of a three-way break up over the next year and a half. And this past November, German giant Siemens said that 2018 will be a year of change with plans to list its healthcare business spinoff on the Frankfurt stock exchange. The company has already put its wind-power business into a joint venture with plans to follow suit with its rail business.

“We have understood that conglomerates of the old-fashioned kind have no future,” Siemens CEO Joe Kaeser said at a news conference, shortly after reporting a 10 percent drop in profit for its industrial activities in the fourth quarter.

In an interview with the Financial Times last fall, Christer Gardell, co-founder of Swedish activist investor Cevian Capital – which holds $15 billion in assets – also ruminated on the end of Europe’s biggest industrial conglomerates.

“The major trend in M&A over the next five to seven years will be demergers. These complicated businesses will simplify themselves by spinning parts off,” Gardell told the Financial Times, adding, “General Electric and those classic conglomerates are falling apart.”

So who’s the next to unbundle and spin-off?


Irish drugmaker, Shire, recently backed away from its $20 billion by 2020 goal, downgrading to $17 to $18 billion in revenue during that same period. But, perhaps more interestingly, the London-listed pharmaceutical company also stoked already simmering spinoff rumors at the J.P. Morgan Healthcare Conference in January, saying it would be creating two business divisions – one for neuroscience and one for rare diseases.

The decision is seen by many analysts as a precursor to a potential separate listing for each business and the company didn’t disagree, saying it intends to evaluate “all strategic alternatives, including the merits of an independent listing for each of the two divisions.”


Speaking of rumors, Prudential’s decision to merge its UK life insurance business with fund group M&G last August – a move that could potentially save the company £145 million a year – also felt suspiciously in line with preparations for a spinoff.

“There has been speculation for some time that Prudential might seek to split its mature UK business from the rapidly growing US and Asian operations,” Nicholas Hyett, equity analyst at Hargreaves Lansdown told Citywire Money. “That makes the decision to merge the UK life and M&G asset management businesses into a single operation, M&G Prudential, a significant one – the combined business would bear a remarkable resemblance to several other UK life businesses, and the success of the defined contribution pension scheme-focused PruFund would seem to provide a model for a viable standalone future.”


The Dunstable, U.K.-headquartered conglomerate Whitbread has recently faced renewed calls for a spinoff, specifically for it’s Costa Coffee and Premier Inn brands – from activist investor Sachem Head. In an analyst’s note in January, Barclays said the “most obvious step” would be to sell Costa.

“We remain entirely open-minded about the structure of the business and are fully committed to reviewing it on a regular basis at the board level,” Whitbread chief Alison Brittain told the Telegraph. Currently, Whitbread’s market capitalization is about £7.2 billion.


And finally, as close as you can get to a sure thing: Honeywell International announced plans to spin-off both its homes product portfolio and transportation business into two publicly-traded companies by the end of 2018. The logic being that the new entities will be able to pursue their own growth opportunities.

CEO Darius Adamczyk says the $3 billion generated from the spinout will help Honeywell repay debt, buy back shares, and potentially, launch an acquisition spree.

“All the remaining businesses offer options for investment and growth,’’ Adamczyk said on a conference call with analysts. “The punch line for me is, we’re going to be very active in the M&A arena.’’

While there’s some debate as to whether we’re witnessing “the death of the old-fashioned conglomerate model,” or watching multinational corporations shift their weight and adjust to the changing economic environment of insular self-interest is hard to say. Either way, it’s hard to deny Swedish activist investor Gardell’s pulse-check on the corporate giants: “It’s an old-fashioned structure that is getting increasingly difficult to manage.”

Andrew Seale

Andrew Seale is a Toronto-based business writer who contributes frequently to Yahoo Canada Finance, The Globe and Mail's Report on Business and The Toronto Star.