In corporate finance, this will go down as the year of the spinoff. Activity is on pace to hit $230 billion, which is six times last year?s total and approaching a whopping 8% of global deal activity, according to Citigroup. With rocky economic conditions unlikely to give executives much reason to go shopping, 2012 could bring still more splits.
The market has been in an antidiversification mood. Just seven months after Motorola completed its spinoff of Motorola Mobility in January, Google saw fit to pay $12.5 billion for the newly independent mobile phone company, a 63% premium to where the stock had been trading. Shares of Motorola Solutions, meanwhile, have gained 25% in a flat year for the S&P?s 500-stock index.
The trend has not much discriminated by industry or country of origin. Fiat, ConocoPhillips, Kraft, ArcelorMittal and McGraw-Hill were among big companies that sought to shed noncore units in the hope of eliminating valuation discounts. Their spinoffs will inspire others, perhaps other large holdouts.
In the oil industry, the value gaps between integrated operators and independents are becoming harder to miss. Carve-ups should pressure the likes of Exxon Mobil to consider the benefits of separating exploration from production. Similarly, it might be time for Pepsi to exit the snacks business. That unit is leading the company?s shares to trade more like those of a slow-growth food company than shares of its better-performing beverage peers.
The ranks of true conglomerates also have been thinned by three-way breakups at ITT and Fortune Brands. General Electric?s shareholders might be envious. With GE stock down by half over the last decade, investors probably would not miss the refrigerators-to-credit-cards business model. Meanwhile, succession plans at Berkshire Hathaway have reopened questions about whether Warren Buffett?s collection of assets might fare better separated.
For News Corporation, led by Rupert Murdoch, a split would come better late than never. Murdoch may love newspapers, but they detract from the value of his more attractive TV and satellite businesses. And Goldman Sachs will not tolerate its stock?s trading below book value forever. The bank likes to boast of its triumphs over crises. Pulling off another may require something bold like a breakup.
This is no time to be a plain vanilla investment banker. Trading commissions are unexciting. Companies aren?t splashing out on big acquisitions. New regulations are taking a bite. So it takes more than a Herm?s tie and a PowerPoint prepared by sleep-deprived associates to make a Maserati-size living.
The crises of the moment, the biggest of them in Europe, are creating lucrative new opportunities for entrepreneurial financiers. Exchange rate and debt price volatility mean multinational companies have to worry like never before about hedging their exposure. That gives the currency, commodities and derivatives traders at firms like Deutsche Bank a new way to gain access to boardrooms, the traditional preserve of bankers specialising in M&As.