The Next Big Profit Opportunity Is Companies Getting Smaller

Joseph Papa was hired to turn Bausch Health Cos. Inc. (BHC) around. Instead, he is breaking it up. But he’s not crazy. He’s caught on to the fact that bigger isn’t always better.

You see, Bausch Health Cos. Inc. (BHC) and its subsidiary, Bausch + Lomb eye care, are two great companies, but together, they aren’t exactly chocolate and peanut butter.

Papa has realized that the only thing worse than no partnership at all is a bad partnership, so he’s letting Bausch + Lomb become its own $3.1 billion business.

This means that both companies will be free to focus on their own business models, their own specialized products, and their own target markets. It’s a move that’s going to create billions in new shareholder value.

And while I applaud the move, I think that there’s a better way to cash in on corporate spinoffs like this one.

That’s because Joseph Papa’s move is part of a massive trend…

Thinking Small

Bausch + Lomb may be an obscure name. But its impact has been undeniable.

This eye care firm first created Ray-Ban sunglasses for military pilots. It also was one of the first companies to mass-produce soft contact lenses and contact lens solutions.

Last year, the brand had $3.7 billion in revenue from sales of contact lenses, eye surgery devices, and the like. Most of those came from outside the U.S.

Meanwhile, the rest of Bausch Health designs, makes, and sells pharmaceuticals These include drugs for depression, psoriasis, and gastrointestinal conditions.

Those are two very different lines of business, so you can see how they could both benefit from being run separately.

In fact, that’s usually exactly what happens when a corporation spins off a division so both can be more focused.

In a JPMorgan study of all spin-offs done between 1985 and 1995, spin-offs outperformed the markets by an average of 20% in their first 18 months.

According to Wall Street analyst Chip Dickson, that number more than doubled a decade later.

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