Curtain falls on the era of big UK conglomerates

This report is taken from this week’s CNBC UK Stock Exchange newsletter. Like what you see? You can subscribe here.

Mission

There was great excitement last week when the most extensive dinosaur tracks ever seen in the UK were discovered in an Oxfordshire quarry. The footprints, hundreds of them, were made by huge animals that roamed the Earth 166 million years ago.

If you look hard enough, you can see that British businesses too still bear traces of the lumbering creatures that once dominated the landscape.

In contrast to the United States, conglomerates – giant corporations that own many companies in different sectors – have more or less disappeared in Britain.

This was reinforced when last Friday Smith GroupThe FTSE-100 engineering firm has announced a major sale as it relinquishes its block status.

smiths [full disclosure — I was recently paid by the company to record an interview with its chief executive to accompany publication of its results] Founded in 1851 as a jeweler and watchmaker, it gained international fame when Sir Edmund Hillary wore one of its watches in 1953, as he and Tenzing Norgay became the first people to conquer Mount Everest.

Millions now see its brand daily as they pass through airport scanners.

Ironically, Smith Detection is one of the companies slated for elimination by CEO Roland Carter. Already gone is Smiths Medical, a supplier to hospitals around the world, which was sold to California-based ICU Medical in 2022 for $2.7 billion. Then last week saw the £1.3 billion ($1.74 billion) sale of Smiths Interconnect, a provider of connectivity solutions, including fiber optics and radio frequency transceivers, to Molex, an Illinois-based manufacturer owned by the billionaire Koch family.

With Smith Detection, a dual-track process is currently underway, with Smith open to either sale or spin-off.

When the project is completed, Smith’s business will be limited to two companies: John Crane, a supplier of mechanical seals and filtration products, and FlexTech, which supplies components that heat and move liquids and gases.

The separation, announced in January, was a surprise because Carter, who succeeded Paul Kell as CEO in March 2024, had run both Smiths Detection and Smiths Interconnect earlier in his career and was seen by some investors as committed to both.

When we met recently, it was clear that a split was appropriate, arguing that investors had misunderstood Smith. There are fewer sell-side equity analysts in the UK than in the past, and those who remain have less time to study the business in detail. Carter hopes the market will better understand Smith’s more focused company delivering superior returns. A reassessment is already underway: Since the breakup was announced, Smith’s shares have risen more than 30%, hitting record highs along the way.

The split was also surprising because, not long before, Smiths had declined invitations from an activist investor, Engen Capital, to do so.

Opposition to the breakup has long been coming from George Buckley, the respected industrialist who chaired Smiths from 2013 to 2023 and who previously served as chief executive of 3M, one of the largest US conglomerates.

He has been a strong advocate of this model, telling me in 2014: “Pure play is great in expanding markets, terrible in shrinking markets. So I’m a fan of conglomerates.”

End of an era

The break-up of Smiths marks the end of an era in which conglomerates dominated the ranks of Britain’s largest companies. Among them was BTR, the old British tire and rubber company, whose activities included, among others, chemicals, textiles and packaging. Another was Tomkins, a former belt and buckle maker, whose ownership by Smith & Wesson and baker Ranx Hovis McDougall was seen by journalists as “the guns-to-cakes range.” Thorn EMI’s activities at one time included lighting and defense equipment, the HMV record chain, the EMI music label and the broadcaster Thames Television.

Trafalgar House was a real estate company whose businesses diversified into construction, engineering, hotels and shipping, and whose assets at one time included the Ritz Hotel, the luxury cruise ship QE2 and the Daily Express newspaper.

Hanson, the most famous company, has grown from a commercial vehicle business into a behemoth spanning building materials, tobacco, coal and energy.

They all had pirate leaders like Owen Green at BTR, Nigel Brooks at Trafalgar House, and Greg Hutchings at Tomkins – ambitious, hard-working men intent on growing rapidly through mergers and acquisitions, particularly takeovers of poorly managed companies, and boosting financial performance through aggressive cost cuts and sales. Assets. They were in tune with the zeitgeist in Britain in the 1980s, when interest rates rose higher to cure the country’s high inflation, leading to the collapse of dozens of poorly performing industrial companies.

They were on the front pages as often as the business pages: James Hanson, for example, dated Gene Simmons and Joan Collins and was engaged to Audrey Hepburn for about a year.

But all this ended largely due to overreach: Trafalgar House collapsed after a failed takeover attempt of the household electricity company Northern Electric. BTR’s sprawling group of companies was unable to compete when globalization began to reshape its markets. Tomkins broke away after Hutchings’ overthrow. Hanson did the same after a failed bid to buy chemicals giant ICI (itself a former conglomerate that gave rise to the pharmaceutical company Zeneca, now AstraZeneca) tarnished its reputation in the city.

However, traces of ancient British conglomerates are everywhere. Imperial Tobacco, once owned by Hanson, remains one of the largest companies in its field globally. Cunard, formerly owned by Trafalgar House, is a core part of Carnival Corporation, the world’s largest cruise provider. The latter also owns P&O Princess Cruises, which was previously part of another former conglomerate, P&O, whose ports and ferries are now owned by Dubai Port World.

Leaving aside Lonrho, which still exists as a small private company operating in sub-Saharan Africa, the most famous former British company to live on is British American Tobacco, which at various points owned insurance companies (Eagle Star, Farmers & Allied Dunbar), retailers (Argus and Saks Fifth Avenue) and a paper and packaging company (Wiggins Tape Appleton).

It spun itself off in response to a £13.2bn takeover bid – a huge sum at the time – in 1989 led by corporate raiders James Goldsmith and Kerry Packer, and has flourished ever since as a pure play.

Smith hopes to have a similarly bright future.

Top TV picks on CNBC

Rachel Reeves, UK Finance Minister, discusses budget priorities, fiscal discipline and economic challenges amid global volatility in a conversation with CNBC’s Karen Tso.

CNBC’s Ritika Gupta takes a look at the temperature of the UK film industry, as US President Donald Trump’s tariff threat plays in the background at the BFI London Film Festival.

George Osborne, former British Finance Minister and member of Coinbase’s Global Advisory Board, discusses investing in and regulating stablecoins.

– Holly Eliatt

Need to know

The British film industry is under threat from Trump’s tariffs. The US President wrote last September that he was considering imposing 100% customs duties on films produced outside the country. This would deal a major blow to UK studios, which, apart from suffering from poor ticket sales, It relies heavily on American partnerships.

British Finance Minister Rachel Reeves said the budget would respond to the challenges. On November 26, Reeves will deliver the UK’s autumn budget. The budget comes as the UK struggles Faltering economy, Price inflation High government borrowing costs.

The British economy was sleepwalking in August. The data showed GDP growth of 0.1% on a monthly basis, as expected in a Reuters poll of economists. Growth data was for July, which initially showed the economy holding steady Adjusted down to 0.1% shrinkage.

—Yu Boon Ping, Holly Eliat

Quote of the week

In the markets

Shares listed on the London Stock Exchange declined last week FTSE 100 index Declining about 0.4% since last Tuesday. Defense stocks were in focus as investors reacted to them Another meeting Between US President Donald Trump and Ukrainian President Volodymyr Zelensky.

Meanwhile, concerns about credit quality in the United States spread across the Atlantic and saw widespread selling in Europe Banking stocks on FridayAlthough the sector recovered quickly.

the British pound It rose approximately 0.5% against the US dollar over the week.

Returns to the UK Government 10-year bondsInterest rates, known as bonds, fell over the same period, falling to 4.481% on Tuesday as investors reacted to… Data that showed public sector borrowing in the United Kingdom It reached £20.2 billion ($27 billion) last month – the highest for any September since records began in 1997.

-Tasmin Lockwood

Coming

October 22: UK inflation data for September
October 23: CBI Business Optimism Index for Q4
October 24: UK retail sales data

– Holly Eliatt