It has become common for large companies to hive off a large part of the business and there are signs smaller companies are following suit.
In the recent past, insurance giant Prudential PLC (LSE:PRU) has been the poster boy for big demergers. First, it separated its asset management business, M&G PLC (LSE:MNG), which is enjoying life as a London-listed company, and then last year it set free its US business, Jackson Financial Services.
Also last year, Wickes PLC rejoined the London Stock Exchange as a standalone company after previously being acquired by Travis Perkins (LSE:TPK) PLC in 2000.
Mining giant Anglo American PLC (LSE:AAL) got in on the act and split off Thungela Resourced Limited, its South African thermal coal business.
Perhaps inspired by the apparent success of that move, activist investor Bluebell Capital has been pressuring FTSE 100 miner and commodities trader Glencore PLC (LSE:GLEN) to spin off its thermal coal business as a separate listed entity, albeit while retaining overall control of the business.
Having an arm's length interest in thermal coal is becoming quite the thing. In January of this year, Evraz PLC announced that it was considering the strategic merits of the potential demerger of its metallurgical coal assets consolidated under PJSC Raspadskaya.
That idea might have been overtaken by events in Ukraine and is possibly no longer high on the list of priorities of the Russian steelmaker.
Sector peer, Hochschild Mining PLC (LSE:HOC, OTCQX:HCHDF) decided late last year that the Aclara ionic clay rare earth deposit in Chile was not a core part of its business and span off Aclara Resources, which is now listed on Toronto’s TSX exchange.
It’s not just mega-large resource companies spinning out companies, however; last year President Energy, a £34mln company, floated ATOME Energy PLC (AIM:ATOM) on the London Stock Exchange and gave eligible shareholders a stake.
Shares in ATOME, which is developing green hydrogen and ammonia production businesses in Iceland and Paraguay, have been steady performers since floating, rising from 80p to 84p currently.
Today, Optibiotix Health PLC, no stranger to spinning off parts of the business (see SkinBioTherapeutics PLC (AIM:SBTX)), unveiled plans to list its ProBiotix Health arm on the Aquis Growth Market, raising £2.5mln in the process for the newly independent business.
The spin-off is being done to exploit the “multiple opportunities” identified by management.
The ProBiotix demerger, if it happens, pales into insignificance compared to the forthcoming listing of Haleon, the consumer healthcare company jointly owned by GlaxoSmithKline PLC (LSE:GSK) and Pfizer.
Unilever PLC (LSE:ULVR) briefly tried to prize the division from GSK’s grasp earlier this year but GSK remains firmly convinced that a demerger is the way to go.
According to business consultant KPMG, we can expect similar deals to complete in 2022.
“A key motivation behind many deals in the pipeline is to spin off assets into their primary geographical region of operations, driven by shareholder value considerations and increasingly, the ESG [environmental, social and governance] agenda,” KPMG said.
All of which may be true but the more common rationalisation for a demerger has been that the market undervalues a particular part of the business.
There has never been a chief executive officer who believes their company is fully valued; the increasing number of demergers looks set to put that belief to the test.