Shift to Pure Plays

In a pure spin off, a parent company distributes 100% of its ownership interests in a subsidiary operation as a dividend to its existing shareholders. After the spin off, there are two separate, publicly held firms that have exactly the same shareholder base.

Era of conglomerate (1960s - 1980s)

  • Firms diversify holdings to "smooth" earnings
  • Market rewards empire building

Conglomerates fall out of favor

  • Focus on cost
  • Difficult to value all businesses in diversified companies
  • Market discounts conglomerate stocks

Rise of the Pure Play (1990s - Current)

  • Market rewards firms that concentrate on core business
  • Competitive landscape pressures management to improve operating efficiency and clarify strategic decision making