Will ITT's and Marathon Oil's Internal Company Splits Become A New Trend?
According to a recent press release, the Board of Directors of Marathon Oil Corporation (Marathon) (NYSE: MRO) announced today that it has approved moving forward with plans to spin off Marathon's downstream business, creating two independent companies.
The second company, Marathon Petroleum Company (NYSE: MPC) is anticipated to trade on the NYSE under the ticker symbol "MPC". The spin-off is expected to be tax-free and to be effective June 30, 2011. Marathon Petroleum Company is to be headquartered in Findlay, Ohio It is expected to be the fifth largest U.S. refiner concentrated mainly in the Midwest, Gulf Coast and Southeast regions of the U.S.
It seems like breaking up a company into different standalone businesses could be a new trend, which does have its advantages. Splitting a company into different enterprises allows share prices to increase in case shoppers want to purchase a business separately rather than a whole. It is more cost effective for the purchasing company and it still allows the parent company to have complete control of what aspects of its business to let go.
This type of business practice could possibly help companies siphon off assets it wants to cut from its business model, yet still might be attractive to other businesses. Another sector that could see this trend rise is the medical device or even the pharmaceutical sector. For example (and not to speculate that this will happen), Stryker (NYSE: SYK) operates in two segments, Orthopedic and MedSurg equipment. Like Marathon and ITT, Stryker could still have the same goals and communication between the segments, it just makes it more attractive to any potential buyer like Medtronic (NYSE: MDT), Zimmer Holdings (NYSE: ZMH), or Philips Medical Systems. Each of these these companies has their own niche and each could potentially benefit from the break-up of another, initiating a takeover or merger.
Marathon is 10% higher in pre-market trading. It closed Wednesday at $40.53
