Calling It Splits

Top of Mind

Calling It Splits

By Paula Bernier, Executive Editor, TMC  |  December 04, 2014

Comedian Louis C.K. says divorce is always good news because no good marriage has ever ended in divorce. That may also be the case with diversified companies that are now heading for splitsville because their portfolios and growth profiles have become completely out of sync.

“The motivations that compel companies to split can vary significantly, but they come down to two main benefits: focusing management and maximizing shareholder value,” Business Insider recently noted.

In discussing Madison Square Garden’s exploration of a plan to split, which was revealed in late October, MSG’s CEO Tad Smith commented: “Investors favor companies with greater strategic focus on their core businesses.”

These are the drivers of an array of splits and spinoffs we’re seeing in a variety of industry verticals. But the divorce rate in tech seems especially notable given some of the major players making a break.

HP and Symantec (News - Alert) are among the companies who have recently revealed plans to split. Meanwhile, Alcatel-Lucent recently sold off the bulk of its Enterprise division to a Chinese investor, and Amazon is spinning off PayPal (News - Alert), the online payments outfit it bought in 2002.

News of the HP split came as HP nears year four of its five-year turnaround plan, noted TMC reporter Peter Bernstein. HP President, CEO, and Chairman Meg Whitman said the plan did strengthen the company’s core business, but that the split will provide the two companies that come out of it with “the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics….”

The HP split will result in the creation of HP Inc., a personal systems and print company, and Hewlett-Packard (News - Alert) Enterprise, which will sell the company’s OpenStack Helion cloud platform, networking, servers, storage, and services and software. Conventional wisdom is that this split makes sense since these two sides of the business had an extremely broad portfolio, which meant different customers, different sales cycles, and that made it tough for investorys to evaluate growth prospects and the value of the business. Hewlett-Packard Enterprise is the business at which IDC (News - Alert) expects to see more radical change and strategic bets based on where it believes technology is going, commented IDC analyst Giorgio Nebuloni.

Meanwhile, security giant Synamtec, which has a valuation of $16 billion, in October announced plans to split into a publicly traded company focused on data security and another focusing on information management. Activist investors have reportedly been pushing for this for five years, as revenue has been on the decline, perhaps due in part to slowing PC sales.

“It has become clear that winning in both security and information management requires distinct strategies, focused investments and go-to market innovation,” said Michael A. Brown, Symantec president and CEO. “Separating Symantec into two, independent publicly traded companies will provide each business the flexibility and focus to drive growth and enhance shareholder value.”

In September we learned of eBay’s (News - Alert) plans to spin off PayPal, which it bought in 2002.

This is scheduled to happen by the end of this year.

And in October we learned that Alcatel-Lucent Enterprise is becoming its own company with the help of a new majority investor out of China. These changes are being made with the goal of doubling the size of Alcatel-Lucent Enterprise’s business over the next five years.

“This is the first day in a new era for Alcatel-Lucent Enterprise,” Michel Emelianoff, Alcatel-Lucent Enterprise president, said in announcing the news.

China Huaxin Post & Telecommunication Economy Development Center (or China Huaxin) closed a Eur 202 million deal with Alcatel-Lucent for an 85 percent share of Alcatel-Lucent Enterprise, which becomes its own holding company, to be incorporated in France. (Alcatel-Lucent is the only other shareholder of the new Alcatel-Lucent Enterprise, with the remaining 15 percent stake. The new company and its former partner will continue to work together under what they describe as a “privileged business relationship”.)

China Huaxin is a Chinese investment company with more than Euro 1 billion in assets and a keen interest in information and communications technologies, including the cloud, optical communications, smart city, telecommunications solutions, systems and software, and now enterprise and mobile applications.

“This is an investor that’s looking at long-term value,” Emelianoff said.

About a year ago, Emelianoff said, Alcatel-Lucent decided to look for external investors that could help empower the Enterprise business to cement a leadership role with businesses as they transitioned to new IP- and software-based technologies and on-demand IT business models. 

Edited by Maurice Nagle