Weighing Risk and Reward When Considering Mega Merger Breakups

Several recent mega mergers are contemplating unwinding as the promised synergies, cost savings, and division growth have failed to materialize. Paired with market changes and disruptions, as well as other pressures, merger breakups are reshaping the business landscape as 2025 draws to a close.

Some post-merger conglomerates, like other conglomerates (Johnson & Johnson, General Electric), couldn’t achieve the projected or anticipated benefits of bringing together multiple companies, resulting in disappointing stock performance. The notable AOL-Time Warner merger of 25 years ago may provide a roadmap for risks to be aware of when contemplating a merger and, more importantly, implementing the integration post-closing—sizable business challenges, in addition to a highly reported series of culture clashes, ultimately caused this massive merger to fail.

There are numerous examples of failed mergers in the attempt to build global conglomerates, and these case studies offer important lessons to be learned and effectuated to try to avoid causes for failure. Moreover, as these conglomerates split or spin-off “non-core” businesses, they could better align their corporate cultures with their branding and business development goals to drive value.

With a leaner, more focused approach, the slimmed-down companies and their spin-offs may better execute and produce much-improved value for shareholders. From the previous mega mergers that caused perceived bloat or loss of brand identity and purpose, these companies can now help investors and lenders identify and value them more accurately without so many competing and convoluted interests.

Spun-off businesses may also better attract investors who are more aligned with their specific industry focus, compared to a conglomerate with multiple business lines, which could also minimize trading volatility and enhance shareholder value.

Corporate splits, spin-offs, carve outs, and other kinds of divestiture activity are seismic corporate activities and aren’t without risks. Companies must be mindful of all the legal, compliance, and various corporate complexities that come into play so these winnowing activities don’t create further headaches and loss to shareholder value.

Mission-Critical Considerations

Companies require highly experienced counsel to help determine the most efficient path forward and to navigate the numerous approvals and public disclosures required in these corporate break-ups. Plotting out exactly how to break up a company prior to any public announcement is of tremendous importance.

Chief among these considerations are how to divide up the assets; transaction structuring; required public disclosures and stock exchange approvals and notices; required approvals by shareholders, lenders, and regulators (both domestically and internationally); communications planning; impacts on local and federal government and political relationships.

A comprehensive transition services agreement between the divesting seller and the acquirer can be crucial to ensure a smooth and seamless post-closing period.

Tax Impacts

Tax analysis is of paramount importance to minimize tax impacts from divestitures and to offer acquirers of the divested businesses favorable tax benefits, such as basis step-ups, that help minimize tax liability. There also may be tax-neutral structures that are available such as spinning off units into distinct new separate public companies. Examples of efforts in this regard include General Electric’s 2024 split into three separate public companies and DuPont’s split into three separate public companies, including the spinoff of its electronics business, Qnity Electronics, Inc., targeted for Nov. 1, 2025.

Intellectual Property Guidance

Navigating the unwinding of shared brands, technologies, and related licenses to acquirers or back to the seller from acquirers must be done with care. The resolution of IP-related issues, preserving trade secrets, and keeping brands in good standing with their target audiences will better position a spin-off to overcome challenges and further disruption.

With change, there is also opportunity for new strategic alliances and IP-related negotiations to drive fresh brand energy in the marketplace and optimize the value of its intellectual capital.

Employment Practices

With mergers unwinding, the separate companies will need to address or create new management structures, compensation and incentive arrangements specific to the now smaller companies’ profiles, employee benefits plans, and retirement plan programs.

An important consideration early in the divestiture process is how best to retain and incentivize the employee base to complete a successful divestiture and ensure there is a viable workforce at the spun-off and remaining companies post-closing. In certain situations, benefit plan design and testing and analysis of potential withdrawal liability (when a unionized workforce is involved) can be critical to the success of a spin-off.

Real Estate Arrangements

With breakups come new real estate considerations, whether it’s the sale of associated real estate assets connected with the divested businesses or figuring out how to partition once-shared real estate such as office space, manufacturing plants, or warehouses. Real estate considerations will play heavily into negotiations around a transition services agreement between a buyer and seller.

Once, Future Mergers

The mega and small mergers of the last few years occurred for a variety of reasons—increased scale, broader offerings, anticipated economies of scale and savings by reducing redundancies, anticipated exploitation of new and developing technologies, and a projected increase to pro forma combined valuation as proven by a “sum-of-the-parts” analysis as justifications for mergers. Just as months of planning went into putting the mergers together, careful planning is also critical to position break-up transactions for success.

For enterprise valuation and success, the new spin-offs and companies must take practical, strategic approaches to their legal challenges and business opportunities. Every stage of the corporate rationalization process has its own dynamics, and the difference between closing the chapter on the mega merger and long-term success of the new reality must be handled with great care.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Kenneth M. Silverman is partner in the mergers & acquisitions and corporate/securities law practice at Olshan Frome Wolosky.

Mitchell Raab is partner and chair of the corporate/securities law practice at Olshan Frome Wolosky.

Edward Taibi is a corporate attorney.

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