say what? starbursting

Starbursting is essentially breaking companies up into more profitable pieces and despite me not being familiar with the term until recently, it is apparently seeing a revival at present according to The Economist.

Notable mentions of rumoured or high profile starbursts include Pfizer, Motorola, Fiat and Foster’s.  The Economist cites the main reasons for the revival as:

… companies seeking buyers for parts of their business are not getting good offers from other firms, or from private equity.

…the “conglomerate discount”—when stockmarkets value a diversified group at less than the sum of its parts.

…that this discount is real seems to be confirmed by the positive stockmarket reaction to the latest starbursts. From 20 days before the announcement of a spin-off to 60 days after, the combined value of the parent and spun-off children has on average outperformed the market by eight percentage points

This trend is much more common in the US and Western Europe with emerging markets seeing the opposite,….hence a popular alternative seems to be diversification.

This may be why, in some parts of the world, conglomerates are becoming even more diversified: witness Samsung Electronics, which is moving into pharmaceuticals.America’s big tech firms are also bucking the starburst trend and diversifying. Oracle, a software giant, has moved into hardware, and Hewlett-Packard, a computer-maker, is expanding further into software and services. Their big corporate customers increasingly want a one-stop shop for their information systems.

Whichever path an organisation chooses to take, one thing is for sure, excellent communications will be imperative both with investment audiences but also customers and prospects.  Interesting times for PR.

One comment

  1. Ged Carroll · April 16, 2011

    A couple of things:
    – I would love to see a McKinsey & Co. or Goldman Sachs deck with that picture in it
    – Back in the day we used to call them spin-offs, if they didn’t ‘star burst’ there was no shareholder value and consequently no reason to pay the investment bank fees

    I think the dark horses in ths process will be:
    – Microsoft (if ever there was a stock that had a price lower than the sum of its parts its this company)
    – Yahoo! as it would enable it to get some value out of its portfolio of Asian businesses
    – Hutchison Whampooa – lots of Asian companies have similar corporate challenges in terms of generational changeover, releasing value from holdings without releasing control so expect this to be executed through financial vehicles rather than straight equities

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