Friday, October 10, 2014

Why Do Companies Split Up?

In the news recently, several companies have split into two different companies.  In the most recent updates, Symantec split itself into security and storage (1). Other cases of a company splitting up are GE, HP, eBay, and Energizer.

The question remains, why do companies split up?



The reason really seems to stem from a change in how investors and the stock market perceive companies.  Pre-financial crisis, investors seemed to favor size. They wanted to invest in a company that is too big to fail. Especially in technology, the more areas a company was able to reach, the more secure the investment. The financial crisis allowed start-ups a chance to shine. To better react, these behemoths of technology recognized that they needed to become more agile.

Start-ups are the new fad in the tech industry. This is a mindset that many companies have started to want to adopt into their culture by becoming more lean. Here, I am using the term lean as the ability for a company to react and produce products at a much quicker pace, while staying competitive.  In order to become leaner, companies must evaluate how they can quickly react to an ever-changing atmosphere.

As a smaller entity, half of HP can focus on making better decisions on their computers. The other half can focus on the various appliances that HP develops.  If my speculation is correct, the appliance side of HP will focus on developing products that work within the Internet of Things (IoT).

Being leaner, the company will be able to better focus on their products to produce a higher quality.  In the end, this should help companies become more profitable and should give consumers better products.

In some cases, such as Symantec, the separation from a certain division or area may be the result for a poor transaction from a merger or acquisition.

Thanks for reading, please comment and let me know what you think about the recent changes.



Citations:

(1) http://www.cnbc.com/id/102077634#.

References:

http://dealbook.nytimes.com/2014/10/06/breaking-up-is-the-new-thing-to-do/?_php=true&_type=blogs&_r=0

http://www.reuters.com/article/2014/10/06/us-hp-restructuring-idUSKCN0HV0U720141006



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