CEO Daily: Friday, January 29
Another victory for 79-year-old Carl Icahn yesterday, forcing Xerox to split itself into two parts, and getting three board seats in the bargain. The Xerox move follows the split by Hewlett-Packard, a planned split by Alcoa, and the merger-then-split of DuPont and Dow. In Icahn’s crosshairs is insurer AIG. GE is selling off pieces as fast as it can to stay ahead of the activists. And IBM must be wondering when its moment is coming. As Dow CEO Andrew Liveris said in this space Tuesday, “the fate of the publicly-owned, diversified company may well be doomed.” Unless, of course, the company happens to be named Alphabet or Amazon.
It’s a sad outcome for energetic Xerox CEO Ursula Burns, who bought the services business she’s now spinning off in 2009, with hopes it would save her company. Xerox is famous for its office copiers, and also for having invented, then fumbled, the early personal computer.
As we’ve reported before, this disassembling of big companies may boost returns for short-term investors, but is it good for the economy? When I interviewed her last November after her split, Meg Whitman argued there are big benefits to being able to “focus, focus, focus, focus” on a narrower set of products. But there’s also benefit from being able to combine sales of hardware and services – which is why Dell and EMC are moving in the opposite direction from HP and Xerox, but doing it in the private markets where activists can’t prey.
The only clear winners in all of this are the investment bankers, who are just as happy to split up companies as combine them, and who no doubt are already looking for the next opportunity to recombine the pieces of this shattered corporate landscape.
Meanwhile, if you missed the GOP debate last night, no worries. Donald Trump missed it, too, and that worked out just fine for him. A check of Google searches shows more people looking for him than all the other candidates combined.
More news below.
• Xerox to split; gives Icahn board seats
Xerox will split itself into two and give several board seats to activist investor Carl Icahn, The Wall Street Journal reported, with one firm focusing on office machines and the other housing its services operations. The move will divide a century-old company that is expected to report a fourth straight year of declining profits and sales on Friday, when the announcement is expected to be made. Icahn is reportedly getting three seats on the services company's board. Most notably, the split unravels Xerox's biggest deal ever, the purchase of Affiliated Computer Services for about $6 billion in 2010. Wall Street Journal (subscription required)
• Obama's plan to close the gender pay gap
A new proposal from the White House on Friday is a plan for private companies to submit salary data to the federal government in an effort to further reduce the pay gap between men and women. The move is an acknowledgement that the Lilly Ledbetter Fair Pay Act, which President Barack Obama signed into law in 2009 to make it easier for women to bring lawsuits for pay discrimination, has only made slow progress on the issue. "Bridging the stubborn pay gap between men and women in the workforce has proven to be very challenging," said Valerie Jarrett, a senior Obama adviser. "This is an issue that’s personal for President Obama." Obama will also announce that the White House will host a “United State of Women” Summit May 23. USA Today
• Bank of Japan cuts key interest rate
The Bank of Japan on Friday said it would reduce interest rates into negative territory, a strategy long thought to be impossible for practical purposes, but one that has become more widespread. For Japan, the idea is that the negative interest rates can stop a global economic slowdown from driving the nation back into deflation, which the Asian nation has been battling for many years now. Four other central banks – the European Central Bank, Switzerland, Denmark and Sweden – all have a negative interest rate on at least one of its official credit facilities. All five struggle with chronically low inflation. Fortune
• Apple explores wireless charging
Bloomberg has reported that Apple is developing wireless-charged phones that could be on the market as soon as 2017, exploring technologies that would allow the company's iPhones and iPads to be powered from further away than the charging mats that are currently used to give mobile devices a jolt. New tech upgrades like wireless charging can help give Apple an edge and also give the company the continued power to sell its products at a premium, which is even more important in a slowing market. While some rivals have released wirelessly-charged smartphones, they still require proximity to a charging plate. Bloomberg
Around the Water Cooler
• Who won the Republican debate?
Republican presidential frontrunner Donald Trump was able to transform his decision to skip the Fox News debate – the final one before the Iowa caucuses on Monday – into a bigger happening than the event itself. The billionaire businessman owned the last two days of coverage by reigniting his feud with the conservative cable network, confirming his strategy of standing apart from the established political-media complex. The seven that did show up fought over immigration, terrorism and government surveillance but Trump wasn't forgotten: traffic on Google search for his name during the early part of the debate eclipsed that of all the candidates on stage combined. Fortune
• Amazon isn't planning to 'kill' FedEx
The trend in journalism these days is to announce with great alarm that any company's new strategy into an adjacent category will ultimately (definitely!) topple the current competition. But on Thursday, e-commerce giant suggested to investors that a plan to quietly build a fleet of planes, trucks, and ships wasn't a move to knock off FedEx and UPS from their perch. Amazon provided some clear nuance: it merely wants another option for shipping millions of orders during busy periods like the holidays, when demand is very last-minute and it can be hard for shippers to guarantee delivery. “We are doing this in order to better serve our customers at peak times,” Amazon CFO Brian Olsavsky said on a call with analysts. Fortune
• Pepsi turns restaurateur
PepsiCo has a portfolio of some of the most well-known snacks in American grocery stores: Fritos, Doritos, Lay's chips and of course, the namesake soda line. But now it is moving into the restaurant business, with a plan to open an event space called Kola House in the Chelsea neighborhood of New York City. “This isn’t a pop-up,” said Seth Kaufman, PepsiCo’s chief marketing officer for beverages in North America. “This is something much bigger than that.” The concept? Provide a "premium" experience in a way that markets the Pepsi product – without overdoing it with the marketing. New York Times (subscription required)