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The keyword used to be "synergy" - the justification for a host of mergers with varying success...

The keyword used to be "synergy" - the justification for a host of mergers with varying success rates. In 2011, it's the spinoff that's in: Twenty public companies this year have announced they're breaking pieces off, including Abbott Labs (ABT), Kraft (KFT), ConocoPhillips (COP) and Sara Lee (SLE). And whatever the reason, Dan Primack says, it's good for the economy.
Comments (12)
  • avickrey
    , contributor
    Comments (38) | Send Message
    The spin-offs that would really be good for the economy are if the larger TBTF banks started spinning-off or divesting some of their businesses aggressively.


    I'm a big fan of simplicity and understanding your core business. While having a diversified and progressive business operation, when one part of your business becomes an impediment to the entire organization, constraining how you invest in it further through capital expenses or compensation to keep your best people, it's time to reconsider the best way to grow that business.


    BAC has a tremendous bankcard division through their acquisition of MBNA in 2005. That acquisition was for $35 billion dollars. That represents more than half the market cap of Bank of America today. You can see other instances if you look at C, WFC, where the value of the parts of a bank (card processing, asset/wealth management, insurance) are greater than the whole.


    I know it was Sandy Weill's dream to make one bank your one stop shop for everything, but instead we have large, clunky banks where one unit subsidizes the mistakes of the other. A break up of large banks would be great for shareholders of financials and great for the economy as well.
    22 Oct 2011, 08:59 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
    Agree. Also harder for a CEO to say "I had no idea what was going on".
    22 Oct 2011, 10:58 AM Reply Like
  • Andrew Shapiro
    , contributor
    Comments (1879) | Send Message
    Also harder to justify the tens of millions in compensation when the 'empire' is smaller.
    23 Oct 2011, 12:31 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4011) | Send Message
    A spin-off of the federal government would also be welcome.
    22 Oct 2011, 09:07 AM Reply Like
  • phoneranger
    , contributor
    Comments (350) | Send Message
    Better idea: sell it off in pieces. Imagine LMT and BA competing to buy the DoD or XOM and CVX fighting over the DoE or chunks of Agriculture going to MON, ADM or K. These companies have been getting a free ride from taxpayers for too long. Let them pay for it from now on.
    23 Oct 2011, 10:26 AM Reply Like
  • tjohn1
    , contributor
    Comments (152) | Send Message
    It is good for the companies and their shareholders including insiders with their millions of shares. Yes 1+1= not 2 but could be better. As for the economy it is doubtful whether all these corporate finance tricks are really beneficial. Long time ago Harold Geneen started the conglomerate revolution. Has that helped this economy over the years? I say no. In my view this country is being destroyed by financiars. That is what the Occupy Wall Street crowds are saying!
    22 Oct 2011, 09:07 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
    When companies merge people lose jobs.
    22 Oct 2011, 10:59 AM Reply Like
  • Ocean Man
    , contributor
    Comments (537) | Send Message
    You don't need synergy to overcome the acquisition premium paid when some stocks have dropped 50%.
    22 Oct 2011, 11:01 AM Reply Like
  • inthemoney
    , contributor
    Comments (981) | Send Message
    In reality , the spin-offs are usually done for the market valuation purposes. There is a tendency to value parts higher separately.
    But it do create jobs, though. After spin-off, each one of these big companies need two legal departments, two IT departments, two security departments and what not.
    Big companies should have synergies but their huge bureaucracies make everything so inefficient that the synergy cannot compensate for it.
    22 Oct 2011, 01:44 PM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
    "Big companies should have synergies but their huge bureaucracies make everything so inefficient that the synergy cannot compensate for it."


    Also the egos of those on top!
    22 Oct 2011, 06:15 PM Reply Like
  • buyitcheap
    , contributor
    Comments (1850) | Send Message
    Anyone using the word synergy is an immediate short candidate iimho. the synergies rarely emerge especially when the acquirer lacks skills in harvesting weak business units.
    22 Oct 2011, 02:16 PM Reply Like
  • jstratt
    , contributor
    Comments (2281) | Send Message
    In some cases a spin off is a good idea. However in many other cases it is not. Without a compelling reason otherwise, it is a failure to manage a business.


    It does allow poor management teams to get huge rewards for poor performance and create large fees for investment bankers.
    22 Oct 2011, 10:24 PM Reply Like
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