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What Thyssenkrupp’s announced split indicates about the state of Europe’s big industrial conglomerates as activist investors turn against them.

Under pressure from shareholders, the German industrial giant said on September 30 that it will split in two. A 17% spike in the share price following the news, though temporary, could entice activist investors to call for other multinational conglomerates to follow suit. Thyssenkrupp was formed in 1999 by the merger of two conglomerates, Thyssen AG and Krupp. Nearly two decades later, the consolidation trend of the late 1990s and early 2000s appears to be reversing.

Thyssenkrupp is known mainly for industrial engineering and steel, but is highly diversified, with 670 subsidiaries worldwide. Investors in rich countries tend to favour companies that focus on and excel in one area over such titanic structures, particularly of late. In July, growing shareholder frustration with years of lacklustre revenues and share prices forced Thyssenkrupp CEO Heinrich Hiesinger to resign. Chairman Ulrich Lehner followed less than two weeks later.

Discontent with Thyssenkrupp goes back farther. Swedish investor Cevian had been after it to restructure since 2013. Sluggish businesses, such as steel, have been an especially sore point, with Cevian arguing that they were taking management’s attention away from more promising units. Thyssenkrupp’s lifts business, for example, has been highly successful, generating “enough profits to justify the entire conglomerate’s €13bn ($15bn) stock market value”, The Economist reports.

The lifts business will form the bulk of a new company called Thyssenkrupp Industrials. A second company, Thyssenkrupp Materials, will consist of a stake in the group’s steelmaking unit, merged with the European business of India’s Tata Group. CEO Guido Kerkhoff will oversee the German industrial group’s split.

Like General Electric and many other American companies, a number of European conglomerates have been paring down. Earlier this year Danish industrial conglomerate A.P. Moller-Maersk finalised a deal to sell its energy assets to France’s Total in order to focus on logistics and shipping. Dutch electronics giant Philips spun off its lighting business in 2016. More recently, activist investor Dan Loeb has called upon Swiss multinational Nestlé to split into three.

Activist hedge funds, particularly in the U.S., have become the driving force behind corporate breakups. The rationale is that giving divisional CEOs more control over their respective domains will make their companies more agile; that is, better able to pivot with market opportunities, merge with rivals, or be taken over by private equity funds – all of which can boost share prices. According to Activist Insight, some 77 European conglomerates are now in the crosshairs of activist investors.

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