Corporate Splits Are Out, Reunions Are In

The Great Corporate Reunion

General Electric spent years breaking itself apart, only to quietly explore reuniting its aviation and power divisions. Johnson & Johnson postponed its consumer goods spinoff indefinitely after announcing it with fanfare. IBM's infrastructure split hasn't delivered the promised shareholder returns.

Welcome to the era of corporate second thoughts.

In the past three years, more than 20 major corporations have either reversed, delayed, or reconsidered their split plans. The corporate playbook that dominated the 2010s—break up to unlock value—is getting a serious rewrite.

Why the Change of Heart?

Follow the money, and the math doesn't add up. Splitting a major corporation costs billions in fees alone. IBM spent $3.4 billion separating its infrastructure business in 2021. The result? Both companies underperformed expectations, with combined market value trailing the original entity.

Then there's the synergy surprise. What looked like bureaucratic bloat in good times proved to be valuable diversification during crises. Companies with multiple business lines weathered COVID-19 and inflation better than their focused competitors. Berkshire Hathaway's diverse portfolio suddenly looks prescient, not outdated.

Activist investors are switching sides too. The same hedge funds that once pushed for splits are now demanding reunification. Elliott Management recently argued that AT&T should recombine its media assets rather than continue operating separately.

The Hidden Costs of Splitting

Beyond the obvious expenses, splits create unexpected friction. Shared IT systems must be duplicated. Customer relationships get complicated when they span multiple entities. Talent gets confused about career paths.

PayPal's2015 split from eBay looked brilliant initially, but both companies now struggle with competitive disadvantages they didn't face as a unified entity. eBay lost its integrated payments advantage, while PayPal lost a massive, captive customer base.

The average split takes 18-24 months to complete and costs 2-4% of annual revenue in execution fees. That's before counting the opportunity costs of management distraction.

What Investors Should Watch

This trend reversal signals a broader shift in corporate strategy. The "focus premium" that drove split announcements is giving way to a "resilience premium" for diversified businesses.

For retail investors, this means being skeptical of split announcements that promise instant value creation. The average stock bump from split announcements has fallen from 8% in 2019 to just 3% in 2024.

Institutional investors are already adjusting. BlackRock recently noted that conglomerates trade at smaller discounts than they did five years ago, suggesting the market is reassessing the value of diversification.