Sembcorp Industries (SGX: U96) shares are down 3% in Singapore today. The fall appears to be the decision announced that they'll not be selling the waste management unit, SembWaste. This after months of mulling it over but the announcement that it'll not be happening has not been - so far at least - explained. The issue here is really, in the background, one about conglomerates. Sometimes they're in fashion, at other times they're not. There is good economic reasoning behind their existence at times but the major influence does seem to be just cultural and business fashion.
Sembcorp Industries has been doing well this past year by the share price at least. A part of which is that they've been sending off subsidiary businesses to deal with the world on their own. Sembcorp Marine became Seatrium, for example. This allowed that merger with Keppel which may or may not work out overall. “Sembcorp Marine Ltd (the “Company” or “Sembcorp Marine” and, together with its subsidiaries, the “Group”), is proposing to change its name from “Sembcorp Marine Ltd” to “Seatrium Limited” following completion of the combination of the businesses of the Company and Keppel Offshore & Marine Ltd on 28 February 2023, and will adopt a new branding for the enlarged entity.””
Sembcorp Industries share price from SGX
The plan was that the waste management business, that SembWaste, would follow on into independence and so make its own way. That's the plan which has been cancelled.
The argument in favour of conglomerates is that they can even out earnings and so on. But so can an investor with a varied portfolio. So it becomes a matter of the efficiency with which a company can raise capital - or return it to shareholders of course. Capital markets have been becoming more efficient these past 40 years, the conglomerate has been going out of style as a result.
Obviously there are marginal cases. Perhaps SembWaste is one of them. But the general idea these days is that a listed company should be in one vertical sector. Let investors do their own diversification at the portfolio level. Rather than using the conglomerate structure to provide it for them.
Maybe Sembcorp has made the right decision here but it is slightly odd that they're moving against the general cultural tide here.