GE to split into three separate companies
I recently read &quot;The Value of Nothing: Capital vs Growth&quot; [1]. (Edit, it was here on HN [2] a week ago). It helped me understand the disconnect in the modern economy; the primary goal is to increase the value of assets and returns on capital rather than the underlying performance and economic growth. It&#x27;s a long read, but here are a few paragraphs that look an awful lot like this split of GE into three separate companies:<p>&gt; <i>...A corporate sector dominated by institutional asset managers and executives whose compensation is based on near-term equity returns is highly incentivized to engage in activities intended to expand valuations even if there is no impact, or a negative impact, on earnings. Such strategies include spinoffs that aim to “unlock” value simply by isolating business units expected to trade at higher valuations, or other forms of financial engineering like stock buybacks.</i> ...<p>&gt; <i>Consider, for example, the case of IBM, which plans to spin off its IT infrastructure division this year in order to “focus on high-margin cloud computing.” The move is being cheered on Wall Street be­cause it is believed that the two businesses will be worth more as separate entities than as one. In particular, the remaining IBM cloud business should command a higher multiple once freed from lower-margin, slower-growing divisions.</i><p>&gt; <i>IBM has followed this same playbook for years: “We divested networking back in the ’90s, we divested PCs back in the 2000s, we divested semiconductors about five years ago . . . ,” said IBM’s CEO, explaining the spin-off. As a result of this strategy, IBM’s revenues and net earnings are lower today than they were in 1998. But its stock price and P&#x2F;E ratio are higher.</i><p>This is a positive outcome for their financing arm - they&#x27;ve generated an increase in the value of their assets without having to risk any capital expenditure. Investors can speculate up the value of GE shares in the energy industry, or healthcare, or defense, without worrying about the other two holding their investment back. Whether the resulting companies is any more productive of actual goods and services than the unified company is irrelevant.<p>[1]: <a href="https:&#x2F;&#x2F;americanaffairsjournal.org&#x2F;2021&#x2F;08&#x2F;the-value-of-nothing-capital-versus-growth&#x2F;" rel="nofollow">https:&#x2F;&#x2F;americanaffairsjournal.org&#x2F;2021&#x2F;08&#x2F;the-value-of-noth...</a><p>[2]: <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=29053503" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=29053503</a>