IACI Iac/Interactivecorp

By Nina Trentmann and Tatyana Shumsky 

An increasing number of global companies plan to sell assets in the next two years as a way to narrow strategic focus and funnel funds to stronger areas of the business.

Executives at companies, including Siemens AG, General Electric Co. and Barry Diller's IAC/InterActiveCorp., are scanning their portfolios to identify divisions that can be sold. Nearly nine out of 10 companies plan to divest assets in the next two years, up from roughly four out of 10 a year ago, according to a report by Ernst & Young LLC released late February.

Corporate decision makers point to shift in global tax policy and industry trends, particularly those tied to new technologies, as amplifying the need to sell noncore units and reroute capital to other business areas. Almost three-quarters of the 900 senior corporate and 100 private-equity executives surveyed by E&Y for the report said changes in technology were driving their divestment plans.

IAC last month hired an investment bank to explore the sale of Dictionary.com, after two parties separately expressed interest in the word-definition site. The move comes after two years of brisk deal making at the media and internet conglomerate during which IAC sold online retailer ShoeBuy.com Inc., British price comparison site PriceRunner International AB, social-networking site ASKfm Europe Ltd. and shed its stake in The Princeton Review.

"We've used divestitures as another form of capital allocation," said Chief Financial Officer Glenn Schiffman. "The decision was made that some of these businesses don't exactly fit in, some of these businesses aren't core and we could redeploy some of that capital into other pursuits."

The main beneficiaries, in this case, were IAC shareholders. The company spent $365 million on stock buybacks between February 2016 and February 2017, roughly half of which was funded through asset sales, Mr. Schiffman said.

Other companies are expected to follow as executives pick off nonessential business lines as companies integrate after three years of brisk deal activity. Global merger and acquisitions reached a record value of $11.34 trillion for the three years ended Dec. 31, 2017, according to Dealogic.

"Companies are seeing divestments much more now as part of their growth strategy and their transformation strategy," said Paul Hammes, head of EY's global divestment team. That is a break from the 2008 global financial crisis, when the sale of a business unit was viewed as an admission of failure, he added.

German engineering company Siemens AG listed 15% of its health-care unit -- called Siemens Healthineers -- in early March for EUR4.2 billion ($5.2 billion), said finance chief Ralf Thomas.

Frequent portfolio reviews help Siemens adjust to changes in its core business areas, Mr. Thomas said in an email. "We assess whether there are paradigm shifts ahead we can capitalize on," he said. "We need to ask ourselves whether Siemens is the best owner and whether there is material and sustainable synergy potential."

But divestments aren't always the best strategy. "What always needs to be taken into consideration is what you give up by [selling assets]," said Frank Witter, CFO at Volkswagen AG.

The German auto maker, for instance, wants to wring out more savings and synergies from its commercial-vehicle units, Mr. Witter said.

Some companies, however, miss out on getting a better sale price, or making a sale altogether because they aren't flexible on the structure of the deal.

U.K. consumer company Reckitt Benckiser Group PLC ended talks to buy Pfizer Inc.'s consumer-health business, which could fetch more than $10 billion, after the U.S. company rejected Reckitt's plan to buy only part of the assets, according to analysts.

Pfizer continues to evaluate alternatives for the unit, including a spinoff or sale. It could also retain the business, the company said in an email.

By contrast, GE is exploring several hybrid deals that would combine some of its assets with public companies to build bigger businesses that would be better positioned in their sectors. The U.S. industrial conglomerate followed this blueprint when it combined its oil-and-gas operations with oil-field services company Baker Hughes last summer.

GE continues to review its portfolio and is getting a lot of interest for several of the divisions it is trying to shed, said new CFO Jamie Miller. She declined to comment on the market or deal strategy, but said GE is open to all sort of structures including spinoffs, splits, IPOs and straight cash deals.

"The structure can depend on the counter party," she said in a recent interview. "We are looking to do deals that are smart for the company."

--Thomas Gryta contributed to this article.

Write to Nina Trentmann at Nina.Trentmann@wsj.com and Tatyana Shumsky at tatyana.shumsky@wsj.com

(END) Dow Jones Newswires

April 24, 2018 05:44 ET (09:44 GMT)

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