and General Electric both announced

that they are splitting up.

Johnson & Johnson will break

into two separate public companies,

one focused on consumer health products

and the other on pharmaceuticals.

And GE will split into three companies,

centered on healthcare, power and aviation.

The splintering of these two heavyweights

is just the latest in a number

of big corporate breakups,

even as tech companies continue to consolidate.

- A lot of people are saying

that this may be the end or the death

of the corporate conglomerate as we've know it.

- [Narrator] Here's what led to the latest wave

of breakups, and what they could mean

for legions of shareholders

with a stake in these industry titans.

The breakup of conglomerates isn't a new phenomenon.

- The rationale for industrial conglomerates

in the first place was efficiency.

- [Narrator] Jason Zweig has been covering investing

and financial history for The Wall Street Journal

for over a decade.

He says the conglomerate model tended

to work for a while until the market got overheated.

- It stopped working

and people learned that these businesses rise

and fall together.

One of the things that happened in the 1980s

is that we had the rise of the leveraged buyout movement,

which today we would call private equity.

And so large funds were able

to get access to relatively cheap money,

which they could use to buy undervalued assets.

So a lot of conglomerates chose that particular time

to split up.

- [Narrator] Conglomerates continued

to decline in popularity in the 1990s and 2000s.

And then in 2008, this happened.

- [Reporter] The Dow tumbled more than 500 points

after two pillars of the street tumbled over the weekend.

- [Narrator] The 2008 financial crisis

marked a new shift for some

of the remaining industrial conglomerates.

Investors led a push to break up bigger companies

when the individual units seemed

to be underperforming independent rivals.

For example, Siemens,

the German multinational technology giant saw

its stock plunge more than 60%.

Under pressure from investors,

it shed its healthcare and energy businesses,

shifting from a conglomerate into a company focused

on higher margin software and technology.

This strategy worked.

Since then, Siemens' market capitalization

has surpassed its rival GE.

For years, GE, one of America's oldest industrial giants

had been struggling.

- The company was engaging in some aggressive accounting

in the late '90s

and into the beginning of the 2000s

that led to problems down the road.

GE Capital, its financial arm,

was taking risks that really did not pan out

during the financial crisis.

- [Narrator] And like Siemens,

GE faced pressure, both internally and externally

to split after parts of its business continued

to perform poorly.

- Certainly management was under enormous pressure

internally to do something.

Meanwhile, they were under enormous pressure

from activists, institutional investors.

- [Narrator] In the early 2000s,

GE began selling off portions of its business,

from insurance and appliances

to NBC Universal.

- General Electric is selling NBC Universal

to the cable TV giant Comcast.

- [Narrator] And its majority stake in oil and gas.

And on November 9th, 2021,

the company announced it would break up

its last three parts,

marking the end of an era for the industrial titan.

This was just days before Johnson & Johnson,

the world's largest health products company by sales

announced plans to break up as well

but it had different reasons.

Johnson & Johnson's CEO said the company decided

to split because the businesses,

customers and markets have diverged so much

in recent years,

a pattern that accelerated during the pandemic.

- I think they just reached the point

where like GE, they felt they could be more efficient

and each unit could get the full attention it deserved

if they split apart.

- [Narrator] Zweig says that when conglomerates split,

it's often due to external pressure.

- When things start to go wrong,

what people say is you could realize the value

that's locked up in these parts of the company.

So people will go from viewing it

as a unified whole

to viewing it as a set

of pieces that would do better

when they were broken off from the whole.

And that applies to institutional investors,

individual investors, competitors.

- [Narrator] An executive at Johnson & Johnson said

it will be in a better position standing alone

to make decisions and allocate resources.

So what do big corporate breakups mean for shareholders?

- Over the long run,

split ups do tend to create value

for investors in the surviving companies.

Now, whether it'll be true

in these particular cases is very difficult to say.

- [Narrator] For Johnson & Johnson,

investors can expect the second company

will have a new name

and the legacy business will continue to go by J&J.

For GE, current shareholders are likely

to receive shares of the new energy

and healthcare companies as dividends

when they spin off.

While the original company that remains

will focus on aviation.

- This may be the end

or it might just be the end of the beginning

but it's likely that we will see more

of these breakups.

- [Narrator] For many non-tech companies,

the future is looking smaller

and more specialized

but what it means for investors is yet to be seen.

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