Giants out of breath | Press

It’s still not nothing. In the space of just one week, three huge industrial conglomerates, GE, Johnson & Johnson and Toshiba – which together combine 380 years of existence – announced the imminent dismemberment of their activities to give birth to eight new distinct entities. Model capital companies of the last century, the industrial giants obviously no longer have the breath or the value of yesteryear.

GE, founded in 1892, was the first to unveil its plans on Tuesday, announcing that it would divest itself of its health and energy activities within three years by spinning out its two divisions through a new listing on the stock exchange for each of them.

The new GE will only keep its activities in the field of aeronautics, where it notably manufactures aircraft engines for Boeing and Airbus. The GE Aviation plant in Bromont, where some 800 employees work to manufacture engine components, is part of the hard core of the next GE.

On Friday, it was the turn of Toshiba and Johnson & Johnson to announce that they too were going to divest certain industrial activities to fall back around a single sector of activity.

Toshiba, a Japanese company founded in 1875, will also split into three distinct entities within two years. A new company will consolidate infrastructure and energy activities through an IPO, while another entity will oversee assets related to electronic device manufacturing and data storage by through an initial public offering.

The original Toshiba will continue to manufacture microprocessors, memory chips and office automation devices.

This offloading operation aims to generate value for shareholders, who have complained for years about Toshiba’s financial underperformance, which was badly battered by a financial scandal in 2015.

Finally, Johnson & Johnson, a conglomerate founded in 1886, specializing in the manufacture of consumer hygiene and health products as well as drugs, vaccines and surgical equipment, has decided to divest its products division. of consumption.

The conglomerate will therefore move away from the manufacture of shampoos, dressings, baby powder, moisturizers and non-prescription drugs (notably Tylenol) to focus on the development of cancer treatments and vaccines and on the manufacture of surgical equipment.

Its CEO, Alex Gorsky, explained that the company wanted to simplify its structure and focus on the most lucrative activities of the group, health products generating 80 billion in revenue against 15 billion for consumer products.

End of diversification

These important changes in the organizational structure of these three large conglomerates confirm the end of the era of diversification, which has long been built as the model of financial and operational solidity par excellence.

For decades, GE, America’s largest industrial conglomerate, was viewed as the best company in the world. Jack Welch, its CEO from 1980 to 2000, was praised by every business leader in the United States for his slogan: “We have to be the best at everything we do.” “

Under his leadership, the group was highly diversified: manufacturing of household appliances, aircraft engines, electronic products, television channel, film studio, electrical distribution, power plants, industrial financing and leasing, health care, rail transport, oil and gas …

In 2000, GE’s market valuation was $ 600 billion. At the start of the week, 21 years later, it was down to $ 120 billion. Its GE Capital division was hit hard by the 2008 financial crisis. Its turnover of $ 180 billion at the time has now fallen to $ 80 billion, and its colossal debt load has forced GE to announce its restructuring and dismantling. next in three separate units.

In Quebec too, we saw the era of conglomerates, notably with the Montreal company Imasco, which was dismembered at the end of the 1990s. The group owned Shoppers Drug Mart (Pharmaprix), Imperial Tobacco Canada, du Canada Trust, the Hardee’s restaurant chain and the Genstar real estate construction company.

At the start of the 2000s, Bombardier also sought to become an industrial conglomerate by wanting to build three business segments of equal strength, in aeronautics, rail and recreation. We even created a Bombardier Capital division; that was before the company was forced to sell its recreational products division and began its long dismemberment …

At the time very popular with investors, conglomerates were used to temper sector risks by investing in a basket of companies, but this practice lost its luster when investors learned how to diversify themselves by sector. from their wallet.

This week’s movement confirms that industrial specialization is gaining the upper hand and that it is better to seek to be good at what one can do best than to get lost in wanting to be everywhere at the same time.