Good morning.
I spoke Friday with one of the newest members of the Fortune 500 club—Thibaut Mongon, CEO of Kenvue, which spun off from Johnson & Johnson in May. The company generated about $15 billion in sales last year, from popular brands like Tylenol, Listerine, Neutrogena, and Band-Aid, which would have landed it around No. 275 on last year’s 500 list. (Kenvue spun off largely free of the liabilities from lawsuits involving baby powder, which stayed with the mothership.)
Mongon called it the “assignment of a lifetime" to take this portfolio of iconic brands and write the next chapter of consumer health. I asked the 20-year J&J veteran what he could do as an independent company that he couldn’t do at J&J. His answer:
“I would say two things. One is this idea of focus. Focusing the organization on one way of winning in our industry, one way to measure our performance, aligning the organization along clear and similar performance indicators—that’s something that is tougher to do in a large corporation, where by definition you are a little more remote from where the action is.
“The second is capital allocation. Kenvue has historically generated north of $2 billion of cash flow every year. In the Johnson & Johnson environment, this cash flow was centralized at the corporation level. Now we will be able to make use of this cash flow for the sole benefit of our brands.”
That, of course, raises questions about why conglomerates exist in the first place. Last week, I finished reading William Cohan’s book Power Failure about the greatest conglomerate of the last century, General Electric, and how it fell apart in this century. Cohan’s narrative suggests GE in its last two decades was the converse of what Mongon is striving for, suffering from a lack of clear operating goals and some very bad mistakes in capital allocation. Power Failure is a primer in how not to run a large company.
In spite of such lessons, however, companies are still more inclined to acquire than to divest, and the corporate deal environment is poised for a 2024 rebound to near record levels. A new survey out this morning of 1,200 global CEOs by EY found that a full 98% of them “expect to actively pursue a strategic transaction in the next 12 months" (up from 89% in January 2023), with 59% looking to M&A, 47% looking to divest, and 63% looking to enter strategic alliances or joint ventures. Improving technology capabilities—particularly in A.I.—is a leading driver of these transactions, EY says.
Other news below. And if you haven’t seen Barbenheimer yet, you are missing out on the summer’s biggest happening.
Alan Murray
@alansmurray
alan.murray@fortune.com
