The collapse of a break-up wave is weakening allies in Amazon

The collapse of a break-up wave is weakening allies in Amazon ...

According to investors and dealmakers, Inc has become the poster child of technology giants resisting the break-up trend of major corporations.

Investors have fallen out of love with conglomerates holding large corporations. Many companies have taken note, with General Electric Co, Johnson & Johnson, and Toshiba Corp confirming plans to break up in recent months.

Some hedge funds claim that Amazon's $1.6 trillion market capitalization hides Amazon Web Services' true value, which its cloud business, which might be worth almost as much as a separate entity.

According to Third Point, investors said the company is undervalued with "significant sum-of-the-parts value." Third Point has not urged Amazon to break up.

Amazon, according to investment bankers, is unlikely to play with its cloud business, a large cash cow. It helps fund Amazon's expansion into new areas and compensates for less profitable divisions that are generating significant revenue growth, such as its third-party merchant and advertising businesses.

"In contrast to industries where businesses may be unconnected or with extremely different financial profiles and capital requirements, large tech firms have ample access to capital and businesses that have not reached maturity," said Michael Kagan, the head of shareholder advisory and structured solutions at Citigroup Inc.

"As a result, opportunities to increase long-term shareholder value by separating into "pure plays" may be less obvious, both financially and operationally."

An Amazon spokesperson has declined to comment.

Even if it made inroads into new areas, building them or bulking up through large acquisitions in industries ranging from big-budget film-making to online groceries, Amazon has flourished largely on the back of its e-commerce business and highly profitably Amazon Web Services.

Many states in the United States have been concerned about the rapid development of its rapid growth, which has unsuccessfully pushed for Amazon and key technology peers to be broken up because to antitrust and data privacy concerns.

The founders of these companies, including Amazon's Jeff Bezos, have pushed back, claiming that technology is the glue that keeps their vastly different businesses together.

"In the real world of technology, there is usually a subset technology that permeates the various segments of a conglomerate entity," said Richard Grossman, an M&A partner at Skadden, Arps, Slate, Meagher, and Flom LLP.

"In a modern sized conglomerate, you often see less overlap between the two groups," says one author.

As global lockdowns began easing, Amazon's stock price surged at the start of the COVID-19 epidemic in 2020, as people avoided shopping in stores and doubled down on online orders. In 2021, the stock market barely rose despite notable gains for the S&P 500 index and other big-tech names. As internet shopping began to slowen, consumers were less relying on it.

Analysts are becoming more bullish on Amazon. Its stock has increased since its fourth-quarter earnings report this month showed significant growth in many non-ecommerce businesses.


According to Dealogic, some 56 firms announced break-ups last year, up from 41 in 2020 and 47 in 2019.

GE said last year that it would split into three public companies to reduce debt and simplify its business. Days later, Johnson & Johnson said it would split off its consumer business to focus on its core pharmaceutical business.

Following the announcement, both companies received a boost. That week, Japan's Toshiba said it would split into three companies as part of a larger effort to improve shareholder value, owing to pressure from activists.

The technology industry is a different story. Several large-scale enterprises, such as Amazon, Apple, and Alphabet, are expanding, often through dozens of acquisitions, and are opening doors to new areas, from autonomous vehicles to groceries.

Kagan said that the fact that many internet companies remain under control by their founders made it less likely that they would comply with pressure to break up anytime soon.

"The ongoing founder voting control enshrines many tech company boards and management teams from significant outside shareholder influence and activism, which have continued to be a major factor in separation activities," Kagan said.

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