Dealmaking is heating up. So are corporate divorces.
Some of the biggest deals this year involve dismantling megamergers from years past.
In June, Warner Bros. Discovery bowed to growing investor discontent and said it would split in two, unwinding the $43 billion deal that brought AT&T’s WarnerMedia and Discovery under the same corporate roof less than four years ago. Last month, Keurig Dr Pepper agreed to buy coffee chain JDE Peet’s for $18 billion—a deal it said was a
Dealmaking is heating up. So are corporate divorces.
Some of the biggest deals this year involve dismantling megamergers from years past.
In June, Warner Bros. Discovery bowed to growing investor discontent and said it would split in two, unwinding the $43 billion deal that brought AT&T’s WarnerMedia and Discovery under the same corporate roof less than four years ago. Last month, Keurig Dr Pepper agreed to buy coffee chain JDE Peet’s for $18 billion—a deal it said was a prelude to separating its soda and coffee businesses, which had joined forces in 2018.
The latest example came Tuesday, when Kraft Heinz unveiled plans to split itself in two a decade after Warren Buffett and a private-equity firm arranged a marriage of the food companies.
Dealmakers say investors lost their taste for conglomerates after promised cost savings failed to materialize or faster-growing segments were weighed down by other units. The industrials sector was one of the first to experience a wave of unwindings, including the three-way split completed in 2024 that ended GE’s reign as a sprawling conglomerate.
Romain Dambre, an M&A partner at the law firm A&O Shearman, says many big companies reach a point where they start trading at a so-called conglomerate discount. And once one business in an industry makes a move, it creates a “snowball effect” for others to do the same.
“Investors want to put their money into something where they’re clear what it does,” Dambre said.
The spate of reconfigurations has spurred a comeback in deal activity. Deal volumes are up 23% in the U.S. year over year as of Wednesday, according to data from LSEG. Not all companies are shying away from megamergers: The year’s biggest deal so far was Union Pacific’s $71.5 billion acquisition of fellow railroad Norfolk Southern.
All that action means big fees for bankers.
In some cases, banks advise on both the couplings and the uncouplings. The boutique investment bank Centerview Partners earned as much as $60 million in fees advising Kraft Foods in its 2015 merger, according to deal filings, and is likely to earn tens of millions counseling Kraft Heinz on its breakup plan. JPMorgan’s bankers, who earned $15 million for advisory work plus $140 million for financing services related to Discovery’s combination with AT&T’s Warner Media, also advised Warner Bros. Discovery on its pending breakup.
The media company’s shares had sagged nearly 60% since the merger by the time the company announced the split. Chief Executive David Zaslav had orchestrated the deal on the premise that streaming and studios would provide a growth engine to offset the declining but profitable cable-TV business. The company took on more than $50 billion in debt to fund the combination.
Zaslav undertook cost cuts but they hurt the company’s ability to compete. Its fortunes fell further with a $9.1 billion write-down on its cable networks.
Scrutiny of consumer companies
The pressure to rethink portfolios has been especially acute for consumer companies that have amassed disparate offerings, often through deals. Many have felt unloved as investors flock to highflying technology and healthcare stocks instead.
Johnson & Johnson, which sells everything from Listerine to replacement knees, is among those that sought to call attention to their higher-growth segments. J&J in 2023 spun out its consumer-products business from its pharmaceutical and medical-device operations, creating a new company called Kenvue. Kenvue has since been pressured by activists to undergo a strategic review of its own.
Froot Loops maker Kellogg split into two companies in 2023, a snack giant named Kellanova and a North American cereal business called WK Kellogg. Kellanova later faced activist pressure to do a deal before agreeing to sell itself to Mars for roughly $30 billion. Ferrero struck a $3.1 billion deal for the cereal business in July.
In the case of Kraft Heinz, extreme cost-cutting measures aimed to generate postmerger “synergies” fell flat. Its CEO acknowledged that the complexity of its business hampered the company.
But Buffett, whose Berkshire Hathaway is Kraft Heinz’s largest shareholder, told the Journal on Tuesday that the breakup plan would be costly and disruptive, and that shareholders should have had a vote.
Earlier this week, activist investor Elliott Investment Management revealed a $4 billion stake in PepsiCo, which derives roughly 60% of its revenue from food sales and the rest from drinks. PepsiCo’s shares have lagged behind the broader market and those of rival Coca-Cola, which is solely focused on drinks. A decade ago, another activist campaign unsuccessfully sought to break up PepsiCo.
Elliott hasn’t specifically called for such a move but is arguing that PepsiCo’s drinks business has suffered in part because of distractions from its food unit. Elliott previously agitated for a breakup at industrials conglomerate Honeywell International, which shared plans to split itself into three companies early this year.
The breakup craze has extended to smaller tie-ups too. In 2020, golf equipment maker Callaway Golf surprised some on Wall Street when it agreed to buy Topgolf Entertainment Group, a chain where guests play interactive golf games and buy food and drinks, in a deal that valued it around $2 billion. The thinking was that Callaway’s industry know-how and finances could fuel Topgolf’s expansion. Now the companies plan to go their separate ways.
“In a lot of these cases, there’s an over-optimism of synergies, or believing in economies of scale that weren’t there,” said Paul Nary, a professor of management at the University of Pennsylvania’s Wharton School of Business.
Still, deciding to pursue a breakup and following through with it can take years and be costly, he said. And executives might not want to admit they were perhaps wrong to buy a business in the first place.
Write to Lauren Thomas at lauren.thomas@wsj.com and Ben Glickman at ben.glickman@wsj.com
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