This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 17, 2017).
BERLIN -- Daimler AG has decided that less is more.
After months of study, the automotive company that owns the Mercedes-Benz car brand said Monday it is taking preparatory steps to reorganize, consolidating its five business divisions into three separate registered companies. The company said the move would give the units greater entrepreneurial freedom and "better utilize the potential for growth and earnings" in their respective markets.
The reorganization, which still requires approval from the supervisory board and shareholders, could set the stage for Daimler to break up the company into separate publicly listed enterprises later. Daimler said there were no current plans to spin off units.
Daimler's announcement comes amid a recent wave of industrial spinoffs, including announcements last week by Pfizer Inc. and Honeywell International Inc. to hive off major business units.
Daimler rival Volkswagen AG also unveiled plans last week to group components manufacturing of its dozen different brands into a cohesive unit, a first step toward a potential spinoff. Volkswagen said there were no plans to split off the unit.
Dicing big conglomerates into more manageable businesses has its advantages, say analysts. The businesses tend to outperform the broader stock market. Untethered from the larger corporation, they can become more nimble.
That is an important factor for auto companies that have to ramp up production of electric vehicles and face competition from Silicon Valley over the development of self-driving car technology.
"Whoever aims for sustainable competitiveness and profitability must continuously evolve and adapt to rapidly changing surroundings -- technologically, culturally and also structurally," Daimler Chief Executive Dieter Zetsche said in a written statement.
Daimler now has five separate businesses that generated EUR153 billion ($181 billion) in revenue last year and EUR8.8 billion in net income. The reorganization plan calls for creating three independent companies that would be wholly owned subsidiaries of the parent, Daimler AG.
Daimler would merge Mercedes-Benz Cars and Mercedes-Benz Vans into one company. It would group Daimler Trucks, one of the largest truck makers in the world and owner of Freightliner in the U.S., and Daimler Buses into a second company.
The third company, Daimler Financial Services, already exists. The unit consists of Daimler's bank that is used to finance car-leasing and loans; as well as the company's growing stable of new mobility services such as the Car2Go car-sharing service, the largest in Europe.
"We are creating the conditions for greater customer and market focus and therefore more growth opportunities," Bodo Uebber, the company's chief finance officer, said in a written statement.
Investors applaud such moves as they tend to create more focused companies that move faster in their individual markets, offer strong potential for alliances and acquisitions, and have management that isn't distracted by unrelated businesses in larger conglomerates.
Arndt Ellinghorst, automotive analyst at Evercore ISI in London, said the announcement by Daimler's management "underlines the commitment for a more contemporary, decentralized and value enhancing group structure."
Amid growing speculation by investors, Daimler made clear in its announcement that it had no plans to spin off any of the businesses.
Yet Mr. Ellinghorst said he didn't think Daimler's rejection of an eventual spinoff was final. "We do not believe that this rules out selling (IPO) or carving-out parts of the newly created legal entities. We would even ask, why go through all this work and spend the money if there is no intention to lift material hidden value?" he said in a note to clients.
The reorganization still faces substantial hurdles, especially from the workforce. To sweeten the deal, Daimler said it wasn't planning job cuts in connection with the restructuring and that it would contribute an additional EUR3 billion to the company's German pension fund in the fourth quarter of 2017.
A final decision on the reorganization would require a vote by shareholders, which couldn't take place until the already scheduled annual general meeting in 2019, the company said.
Write to William Boston at email@example.com
(END) Dow Jones Newswires
October 17, 2017 02:47 ET (06:47 GMT)