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Sometimes, a company is doing so well that the best thing is to break it up. Take CommScope, a listed US maker of telecoms equipment that for years had languished under a heavy debt load. Boss Chuck Treadway has turned CommScope around enough since early 2024 that its junior debt, once trading at 30 cents on the dollar, now changes hands for nearly 100 cents. Now, he’s selling off the company’s crown jewels.
CommScope’s stock price had soared during that time from less than $1 to $8. Still, its enterprise value, at a modest eight times ebitda, lacked vim. That’s no longer the case, after CommScope agreed to sell its biggest division, connectivity and cable solutions, or CCS, to industrial group Amphenol for $10.5bn. The buyer says it will be able to better supply component parts for artificial intelligence data centres. CommScope shares, meanwhile, jumped to nearly $15, or $1.4bn of immediate value creation.
Treadway is not the only one shrinking to greatness. On Monday, helicopter taxi group Blade said it would sell off its passenger business, which ferries the mass-affluent to New York City airports, to Joby Aviation for as much as $125mn. That would leave behind a business that delivers organs by air for transplant. Blade has performed poorly since its market debut, but things were improving: the shares had risen about 75 per cent since April, with a sharp pop after the Joby deal was announced.
It is common when mergers are announced for the target’s shares to rise, while the buyer’s fall. In the case of both CommScope and Blade, that didn’t happen. The shares of the buyers rose too, suggesting assets have been transferred to ownership that better suits them, at a fair price.
Self-dismemberment — especially selling off the biggest part of a group — is uncommon. Public company CEOs are often incentivised, through executive compensation plans, to build sprawling empires that prioritise growth over cash generation. Active management mutual fund investors are easily wooed by promises of greater market share and expanded product offerings. Capital gains tax considerations can also inhibit break-ups too, though that didn’t stop CommScope and Blade.
Moreover, where sales do happen, bosses often prefer to put their entire companies up for auction, thus descending into retirement attached to a golden parachute. Rare are the enterprises that are willing to go forward in condensed form, even when that may be the best outcome for their shareholders.
Private markets, relative to public ones, generally frown less on running a business to harvest cash. The CommScope and Blade examples show that if listed companies can find the right buyer — one that can squeeze better value out of a business than its current owner and is prepared to pay accordingly — throwing out the baby and keeping the bathwater isn’t such a bad strategy.
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