Economics of Breakups: Conglomerate Discounts and Premiums
May '11
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Summary:
Breaking up is back in favor. Recent examples in the US include ITT, Motorola, Fortune Brands, Marathon Oil, Genworth, Sara Lee and just recently, EL Paso.
The results have generally been quite positive. For expample, ITT's shares jumped 11% on the breakup announcement, creating roughly $1B in value. This leads to two interesting questions:
- Do pure plays really outperform diversified companies over time?
- Why did the market value of the same ITT people, assets, products and customers increase by $1B simply by announcing the breakup of the company?