Why are business empires broken up?

Growth is the holy grail for many businesses. The faster a business can grow the more it is worth.

Most of the earnings that are generated by a business are reinvested to drive more growth and still higher valuations.

But what happens when markets reach maturity? Or all the relevant targets have been acquired?

When this happens, valuations often begin to fall and this may result in the whole being worth less than the sum of the parts. This is often known as the ‘conglomerate discount’.

At this point, shareholders start pushing for break up. This management team are usually reluctant to do this, as it runs counter to their belief in growth and diminishes the empire they are paid to run.

Ultimately, activist shareholders or bids from private equity – welcome or not – might provide the catalyst that sparks significant change.

Why Nelson Peltz pushed for Unilever break up

This can be seen in the recent events at Unilever. The company’s management spent almost a century creating a consumer goods behemoth that owned more than 400 brands globally.

This included beauty and personal care brands such as Dove and Lynx, home care brands such as Persil and Domestos, and food brands such as Hellmann’s, Magnum, and Marmite.

Unilever delivered annual sales of €50 billion and €10 billion in operating profit during 2025. But it is now breaking up its empire under pressure from activist investor Nelson Peltz.

Activist investors often take a relatively small stake in a company, then attempt to persuade other shareholders to follow their lead using tools such as research and open letters. They typically agitate for new CEOs, break ups, cost cutting, and bigger pay outs to shareholders.

It’s not uncommon for activist investors to be unpleasant in their approach and CEOs are justifiably concerned when they appear among their shareholders.

In Unilever’s case, a source told the FT that Peltz’s investment fund Trian had been “unbelievably pushy” in agitating for a break-up of the company.

Unilever had already spun off its ice cream division, which includes Ben & Jerry’s and Magnum. Now the remaining food business has been combined with US food giant McCormick in a $66 billion deal.

Why food business mergers often fail

The deal has many critics, who believe its chances of success are limited. That was reflected in the fact that shares dropped seven percent when the talks with McCormick were announced.

Mega food mergers rarely go well. The $46 billion deal to combine Kraft and Heinz in 2015 proved to be a disaster, with the resulting company now worth about half that.

As a result, they have recently announced that this unlikely conglomerate will split to release value, thus unwinding the initial deal. Lack of growth is again cited as a contributor.

Failure to achieve proposed integration benefits is also considered a contributory factor. As they say ‘mergers usually perform better on paper than in practice’. 

It may well be that Unilever shareholders – who will own 55 per cent of an expanded McCormick – face a return. They may discover that they are exchanging a good food business for shares in in a highly risky merger with limited prospects of success.

How has it come to this? One factor is that Unilever is a victim of weight loss medications such as Mounjaro and Wegovy, which have reduced food sales.

Unilever is not alone in this regard. The ‘Mounjaro effect’ is hitting many businesses, including sausage roll purveyor Greggs and Diageo, the upmarket drinks business which has responded by appoint Sir Dave Lewis – often referred to ‘Drastic Dave’ – as its new CEO. 

How Aldi and Lidl are challenging food brands

Another factor is that Unilever, like many other brand managers, has also been eroded by the unwavering and rapid progression of Aldi and Lidl.

The German discounters offer much cheaper ‘own brands’ as competitors to Unilever’s household names. Their advantage is that providing a limited product range significantly reduces their operating costs and their prices.

Finally, Unilever has been through a procession of CEOs since Paul Polman, who drove the sustainability agenda, left his post at the end of 2018. Each of his successors has failed to achieve much more than two per cent annual growth in turnover.

This could only end one way: in cost cutting and disposals to release value back to shareholders.

Unilever is not the first empire to be broken up in this way, nor will it be the last.

UK supermarkets operate in viciously competitive markets where German discounters have taken 18 per cent of the UK grocery market, putting the results of all their competitors under pressure.

As valuations have fallen, private equity has stepped in, buying Asda and Morrisons in 2021. Their objective has been to release value by selling off property, petrol pumps, and some non-core parts of the business such as convenience stores, homeware, and manufacturing.

Why business break ups are on the rise

The rationale is that the parts individually are worth more than the whole. In this case they might be wrong, as they bought at the 2021 peak of the M&A market when business prices were sky high.

Aldi and Lidl are not going away, plunging Asda into losses which will probably make the core businesses difficult to sell.

None of which is likely to deter activist investors from pursuing a similar strategy in future.

Ultimately, CEOs are paid significant packages to bring growth to their businesses. If they can’t achieve this, their tenure might be curtailed or they might face having to break up their empire.

Activists are growing in number and break ups are becoming more frequent.

At some stage most major businesses face mature markets and slow growth. If they can’t find a way to reignite growth then a break up starts to loom large.

Further reading:

Four rules to avoid failure in mergers and acquisitions

Six tips to find hidden value in tech M&A

Four steps to create value in mergers and acquisitions

How to build corporate transformation capabilities

John Colley is Professor of Practice in Strategy and International Business at Warwick Business School and author of The Unwritten Rules of M&A: Mergers and Acquisitions that Deliver Growth - Learning from Private Equity. Before joining academia, Professor Colley was the Managing Director of a FTSE100 company and Executive Managing Director at a French CAC 40 business.

Learn how to add value and avoid common pitfalls in M&A with the three-day programme, Mergers and Acquisitions: How to Maximise Success, at WBS London at The Shard.

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