General Electric joins the graveyard of conglomerates

Conglomerates... There was a time when these behemoths dominated stock markets. After all, creating huge, diversified groups was a way to better protect against economic cyclicality and to spread power across multiple sectors. But now, they are clearly out of fashion. General Electric, perhaps the most emblematic of all the world's industrial conglomerates, has just announced its split into three entities.

Let's face it, in the 21st century, a well-valued company is one that focuses on a core business. An empirical definition of a conglomerate would depict it as a group comprising several businesses that have little or no operational synergies between them. Proponents of conglomerates argue that they can obtain better financing conditions, optimize capital allocation or reduce risk (due to diversification). Their detractors, on the other hand, point to a lack of transparency, high management costs, the risk of constant external growth operations and many other elements. In short, a lack of synergies and structural inefficiency.

But the final blow was dealt by poor stock market performance from various iconic conglomerates, with shareholders calling for their dismantling. After Siemens, ABB, United Technologies and others, it is General Electric's turn to cross the Rubicon. The health sector will be separated in 2023, while the energy-related entities will be merged and split in 2024. The "new" GE will focus on aviation, in particular aircraft engines. The cost of the divorce is estimated at €2 billion. As for Toshiba, it is a split in three that is also taking shape, in 2024.