Big-name spinoffs have been the rage in 2011. Most recently, we have been hit by news that Hewlett-Packard (NYSE:HPQ) will spin off its PC business — a headline that might have been overshadowed by the overall dumpster fire that is HP these days. And then there’s the other smoking wreckage of a tech company, AOL (NYSE:AOL), which is supposedly meeting with a top M&A team to discuss how to sell the company for parts according to reports last week.
But the Hewlett-Packard spinoff and the prospect of an AOL split are just the latest news bites. There is the recently unveiled Kraft (NYSE:KFT) plan to separate into two food companies — a global snack food powerhouse and a North American grocery specialist. And there were handfuls of energy sector spinoffs that have separated “upstream” crude oil operations from “downstream” businesses — including the high-profile split between Marathon Oil (NYSE:MRO) and Marathon Petroleum (NYSE:MPC), among others. And before Google (NASDAQ:GOOG) made its move with a massive buyout a few weeks ago, Motorola split up into the now-bought-out Motorola Mobility (NYSE:MMI) and its enterprise business Motorola Solutions (NYSE:MSI) in January.
So who will be spinning off operations next? Here are four big-name companies that could benefit from divvying up their businesses and find a warm reception to the new companies on Wall Street.
General Electric (NYSE:GE) is one of those corporate octopuses that touches a wide variety of businesses — organized under the disparate units GE Capital, GE Energy, GE Technology Infrastructure and GE Home & Business Solutions.
But don’t think GE is only interested in hoarding assets and businesses. In 2009, it announced a deal to transfer a 51% controlling stake in the NBC Universal division to cable giant Comcast (NASDAQ:CMCSA). And in 2004, GE completed the spinoff of most of its mortgage and life insurance assets into the independent Genworth Financial (NYSE:GNW).
This latter spinoff of Genworth is perhaps the most instructive to what GE could do in the current market with GE Capital. The elements of General Electric engaged in commercial lending, leasing and financial services could easily be packaged into another company — freeing the specter of financial troubles from the core businesses of GE. After all, it was the frozen credit market and exposure to loans that brutalized General Electric stock during the financial crisis and was the prime driver in an ugly 68% dividend cut in early 2009.
It’s worth noting that GE Capital wouldn’t be put on an iceberg and pushed out to sea, either. With a book value of about $70 billion, the recent acquisition of U.K. consumer finance firm Credit Agricole for $4.9 billion and an overall improvement (relatively speaking) in its portfolio of loans means that General Electric’s finance business is pretty healthy. After all, in its July earnings report, GE Capital reported that it turned $1.7 billion in profit during the quarter.
There are a host of kinky divisions at Google (NASDAQ:GOOG) right now, including green energy projects, renewable energy investments, not to mention a steady drumbeat of acquisitions over the past several years that has made the tech giant every bit as much of a conglomerate as the aforementioned GE, including the 2005 purchase of broadband Internet access services from AOL (NYSE:AOL).
What with the mammoth purchase of Motorola Mobility and its related tablet and smartphone operations, it seems Google is growing even more complex. That could mean the time is right for some spinoffs before the company gets too bogged down in disparate operations and a crazy org chart.
That’s why I think it would make sense to separate the core Google businesses like YouTube, Android smartphone software (and now Motorola hardware), as well as its flagship search and advertising services from the quirky brainchildren of its engineers. A so called “Google Innovations” spinoff could lump together all the potentially game-changing technologies that GOOG is working on right now — from its wind farm in Oklahoma to its cars driven by robots to biotechnology ventures that have included investments in firms like Adimab.
The problem, of course, would be that many of these operations aren’t going to make big profits any time soon — or in some cases, any profits. But it would be interesting to put the legacy businesses in one basket and the explosive potential of Google in another if their numbers could get worked out. Clearly Google’s leadership at board and executive levels have bigger fish to fry, and Google Innovations could benefit from a hard-charging and free-wheeling CEO that could lead the campaign into new territory while other folks worry about Chrome for mobile devices or how to increase ad sales 5% this quarter.
What’s more, Google could directly incentivize its employees on these projects with stock in the Google Innovations arm only. After all, if robot vehicles “take off” to generate $100 million in revenue next year, that cash will get lost in the shuffle of some $30 billion in annual revenue. It could pay for both GOOG and its workers to figure out a model like this.