caroline: i'm caroline hyde. >> i'm romaine bostick. they say breaking up is hard to do, but for toshiba and johnson & johnson, they will give it a try. conglomerates announcing they will break up, streamlining their operations. today, we look at the future of this business structure and if the recent moves signaled the start of a trend or if this is a passing moment. we will see who might be the

next to break up when it comes to conglomerates. were they? people talk about tesla, alphabet and meta-platforms. first, let's hear from the ceos who announced the move last week. >> these this misses will be more focused, a higher level of accountability. we should have sharper allocation and strategic flexibility. i think we will end up with investor bases, investors that are probably underinvested in ge today. put all that together and it's clear this is the best path to unlock and create value. >> both businesses have the potential to grow at least single digits and above going forward and we think this will better position the consumer business in this evolving environment to be even more agile and flexible, even more innovative to reach consumers around the world. taylor: for more on the breakups, let's go to the professor of management at the

wharton school who offers programs on leadership for managers around the world. so interesting when we see these boom and bust cycles. then you need scale, you bulk up, then you realize you realize you're too big and not nimble enough, you start to split off and go small again. but have we learned through all these cycles and is it anything different from the breakups of the big conglomerates last week? >> the latest cycle is interesting because i think it is not a cycle, it is a permanent trend that is here to stay. in a nutshell, investors historically have increasingly wanted to put money of big investors of companies in a relatively specific market. at one point, you may recall there was a company that combined steel and oil. at one point, there was a company with rental cars and cupcakes under the same umbrella. tough to manage to begin with.

investors on top of that have said we want to get the sector we want to be in and have been pressing companies for the better part of 30 years to break up. most recently we've seen ge, toshiba, johnson & johnson, others yet to come, the tale of a long-term process that is here to stay. caroline: here to stay globally as well? when does it still work to have a conglomerate? >> it's a good thing for several reasons. not the least of which is that, and larry culp of ge said it, that it allows top people, it is a tough world, complicated to make jet engines for example, tough to make hip replacements like they do at ge, and to give top management an opportunity to focus on the business line, to

use alex gorsky's phrase, greater agility, greater capacity to get the job done. simply put, it's good for management and definitely for consumers. romaine: you mentioned twinkies and car rentals being under the same roof, i assume that was a reference to itt. what he did was very successful at the time. you talk about a company worth a few million dollars and turn into a multibillion-dollar company, but as soon as he left, this is what, 1970 nine or 19 80, there seemed to be at that particular company some sort of awareness that having a multi-headed company or conglomerate in the way he built it was not necessarily the best way to run an operation. if itt and the shareholders and the board and executives realize that in 1980, why did it take us

until the two thousands before general electric seemed to get the same message? >> great question. it should have happened 20 years ago. inertia has its own guidance. it has been a trend. investors have applauded for decades, for example when itt did break up, the same thing at tyco a couple years back, honeywell, a long list of companies that have had wake up calls along the way. the most recent at ge came late in my view. probably should have broken up years ago. i think the good news is under larry culp, a fairly new executive came that was more of a peer play. it takes a while for top management in the boards to come to the moment where they realize the peer play will be the dominant form for our era.

30 years ago, itt, it made sense for various reasons to do it the way it was. new leadership is required. i think others will follow and we will see a series of similar breakups of diversified conglomerates. taylor: talk to us about that. we all know, conglomerates, as you know, at the wharton school, you do a 15% to 30% discount for analysts and advisors. analysts are aware there's a more nimble laser focused company. how much of these breakups are to extract that value versus may be a pure operational standpoint? >> i think the things you just mentioned dovetail together. from an operational standpoint, a pure play is not easier, but you will have more focused people at the top running it. as a result, with the agility

with a corporate umbrella, these companies are able to perform better. one example, tyco, a huge conglomerate, two hundred 40 thousand employees and 900 acquisitions, often seen as the next ge, has gone through two breakups and five separate spinoffs. the value of the separate companies was about five times over the value of the original company. there is value to be unlocked. that's why i think it is one of the great trends of our era, do you conglomerate to station, to make a fancy word out of it. it is unequivocal and here to stay. caroline: michael useem, great advisor at the wharton school. maybe this is the globe or environment. what are the newer forms of

conglomerate like amazon, saying about this? we will talk with catherine harrigan from columbia business school next. this is bloomberg. ♪

romaine: we are focused on the future of conglomerates today. you go back to the 19 60's and 19 70's when they were all the rage. we are starting to see and unraveling. ge one of the latest to announce a streamlined and operations. johnson & johnson and toshiba as well. we are looking at the percentage over the last two decades. maybe they have not gone away, they just evolved. taylor: they just look different. the data tells the story.

this is some data we polled, a professor at nyu looked at more than 30 6000 mergers. almost half of them in the last five years were conglomerate. essentially 35 percent to 40%. maybe they just look different. caroline: do. our bloomberg senior reporter matt boyle, talk to us about how the evolution has changed. we are seeing them, just in a new form, right? >> exactly. the dinosaurs are back but kind of different. we were trying to come up with a new interesting thing to say. the general consensus was this is so long to do, this is the last final gasp of this ecosystem slowly dismantled for

several decades now, but this data from nyu is different. it shows us that conglomerates have not disappeared, they are just morphing into what we see from facebook, better platforms, amazon, tesla, changing form but also going at it with a different way as well. traditional and diversified firms, you look at ge as the poster child. they have to be number one or number two. tesla is not just trying to make a better car, they are changing expectations of what a mobility solution could be. romaine: talking about number one or number two, i'm curious when we call some of these companies conglomerates, you talk about alphabet, at the end of the day there's a tie that binds the businesses together,

similar with facebook. you can make a case with tesla that even though it's more of a industrial conglomerate model, it's different than what we saw with the ge. that's even different than pharmaceutical companies. >> what amazon is doing, buying whole foods, getting into advertising, you see the synergy between selling digital advertising and big brands, but they are also getting into pharmaceuticals and cargo. sometimes, maybe the jury is still out in terms of what are the synergies here? there's technology, innovative talent but time will tell if we will see the death knell of these conglomerates as well and it may not come from industry dynamics. it may come from government regulations. taylor: and will it come from an administration with a big anti-conglomerate rhetoric and anti-tech rhetoric?

you see us break down johnson & johnson and ge, the big tech that has been the target, those continue to get bigger. >> exactly. how that all plays out and how the tech companies try to hairy it and deflect it, make the case there is a greater good here. amazon often says we are not the bad bully of retail. we only have a certain percentage of the overall retail market. it's interesting how they are playing defense here while at the same time trying to stay relevant and stay a step ahead of the joneses. romaine: matthew boyle, great story about the future of conglomerates. maybe they are not dead, just morphed into something else. a quick retort to taylor here. that was a great chart, but there was another one talking about the number of spinoff deals out there like two hundred

five, the most we've seen going back to 2011 i think. basically we have not seen this in quite some time. that tells you the streamline effect. taylor: its weird day when you complement a chart. i will take it. [laughter] romaine: let's bring in professor harrigan from columbia business school. we've talked a lot about u.s. companies that have streamlined or in the case of amazon, maybe not streamlined. when you look overseas, you go to asia, whether it is china, japan or korea, you go to the latin american nations, conglomerates still have a pretty big presence. why? >> there are scarcities those environments have that the united states has outgrown, in particular conglomerates historically have developed

where there is a shortage of access to the capital markets. we have sophisticated capital markets in the u.s. that are part of the motivation for these companies breaking themselves apart when they have no longer -- no longer can improve performance. by contrast, go to a country like india or even at one time hong kong or china or taiwan, korea, there's always been an incentive to make these companies of a critical mass so they can be international competitors. to do that, you often had to amass the same company under a particular umbrella. add to that the fact that sometimes the money that was used to create these conglomerates comes from a particular family. as the offspring of the

innovative founder get to maturity, they have to have something to run of their own. so the company diversifies more and gives something for the children to run. so it has the result of being large and complex and rationalized within an industry. for example in india, you find at least four excellent conglomerates specializing in metal bending and steel processing. caroline: to that end, it is the story of creating a larger company just to appease your children is inherently inefficient. do you think they are not being as efficient and they don't have a capital market to push? >> here's the paradox. the other shortage in addition to capital these environments have is a shortage of management talent.

arguably, the heirs of a building of a great economic conglomerate are probably better trained from family business than somebody who might have come from say a local is in a school or something like that. historically, the shortages, talent and money, have always gone hand in hand and it isn't inefficient until these companies have better access to the rest of the world so they can compete on a world scale basis or have access to the sophisticated markets of london or new york or other markets to have better treatment and the price of capital. taylor: it's interesting, we are having a conversation about the conglomerates discount and the parts evaluation. if you think about leadership and operational efficiency, is that true that it is here and more effective i am streamlined

and there are discounts that get lost in this conglomerate model? >> here's what you have to assume if you have a multi business company. that firm has to have a corporate level of management that often contains highly paid, highly trained specialists that cost money and because they have jobs, they go out and look for something they can do. that would be a long way to explain ge's long efforts to synergize across highly diverse companies. the conglomerate works the best is the one that has no corporate office and lets each business in the family run it self except when they have need for additional capital. of course, i am describing berkshire hathaway's model. romaine: obviously, that has worked to a certain extent. outside of the industrial model or financial model, there's a

lotta focus on the tech companies out there. and what they have managed to build. some people say to a certain extent, this is a softer version of the industrial conglomerate model. >> no, they are quite different. the thing you have to understand about a company like for example amazon, it is highly related on the customer side, even though on the supply side that defines which industries they are in using federal trade commission measures of diversity, they are widely -- wildly disparate. the logic of their strategy at amazon's they have a couple customers who value them very highly, they look to see what complementary goods or services they can provide for those customers that will be interesting and keep their best customers coming back for more and more so that amazon has been

expanding on the supply side into being lots of different services, lots of experiences. on the customer side, it is the same loyal customers coming back again and again. that is one important difference. a second important difference is something that has never been discussed with the industrial conglomerates. when you look at a company like amazon or even tesla for that model, they have high elements of vertical integration, which means that they are providing some critical attributes or critical supplied to the product that they are selling to the ultimate customers. this is something which is characteristic of an entrepreneurial company earlier in its life cycle when it doesn't know who to trust and frankly cannot get a supplier to give them the time of day out of necessity, they create their own systems.

a good agnate -- example in the case of amazon would be in the decision for how to handle fulfillment to the point were now there model for -- they are a model for everyone else to emulate what they basically bought a robotics company and customized to their own needs. taylor: interesting comments, as always. kathryn harrigan of the columbia business school. we will be back next with our final thoughts, so stick with us. romain, i am looking at you. final thoughts are next. ♪

romaine: a lot of talk about what has been going on with conglomerates, whether talking about ge or j&j. maybe not the new conglomerates like amazon or tesla. michael made the joke about

twinkies and rental cars being under the same roof. that was the model, you take completely different this misses but it provides diversification. caroline: i feel a retail investor would love that. romaine: you think that will come back, amc buying wonder bread? taylor: then we heard from kathryn harrigan, highlighting the vertical integration and in some cases, that has worked better. to do it themselves, they did not have a supplier to give them anything so that was a different use case. romaine: then you talk about the differences in geography and you going to the other nations in asia and latin america and you still see those conglomerates because of the economy asserting itself.

primarily because of the economy and also the legacy family businesses. caroline: i thought the announcement from shell today as well in some way, not many good. that does it for "what'd you miss?" taylor: bloomberg technology is next. ♪

announcer: from the heart of where innovation, money and power collide, in silicon valley and beyond, this is bloomberg technology with emily chang. emily: i'm emily chang in san francisco and this is "bloomberg technology." in the next hour, president biden promises change for the better with his new infrastructure law coming at a precarious political moment as polls s