Breaking up is good to do

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NEW YORK (CNNMoney.com) -- Remember Tyco, the poster child for an overzealous acquisition strategy run amok?

Tyco used to own a disparate group of companies, including the ADT security brand, an electronics components and undersea cable division, and a medical devices and pharmaceuticals business.

Well, Tyco is now a much leaner and meaner firm, having split up into three companies last year: Tyco International (TYC), Tyco Electronics (TEL) and Covidien (COV). (The company's widely respected CEO Ed Breen also isn't raiding the corporate coffers to pay for bacchanalian birthday parties for his wife on the island of Sardinia.)

Tyco International, which held onto the security and fire business, reported a fiscal first-quarter profit Tuesday morning that blew away analysts' expectations and the company reaffirmed its outlook for fiscal 2008.

The success of Tyco should serve as a clarion call to many other companies. There are plenty of bloated conglomerates that would be better off focusing on just one or two core businesses.

The argument in favor of conglomerates is that a diverse group of assets offers protection in downturns - even as one business is underperforming, another may be doing well.

But try and name some truly successful conglomerates. It's a relatively short list that arguably begins and ends with GE (GE, Fortune 500). Running a massive, unwieldy corporate behemoth is not easy.

In addition, many of these companies are way too complicated to properly value. So breaking up would make them more attractive to investors.

"You do have more and more companies that are open to breaking up. A lot of people used to think one plus one plus one equals four. Now people think one plus one plus one is one two and a half," said Jim Denney, president of Mohawk Asset Management, which owns all three of the post-split Tyco companies as well as GE.

Along those lines, IAC (IACI, Fortune 500), the Internet advertising and retailing company run by media mogul Barry Diller announced late last year that it was planning to split into five companies.

Expect a lot more breakups this year.

Procter & Gamble (PG, Fortune 500) is spinning off its Folgers coffee business.

Motorola (MOT, Fortune 500), which ironically is where Breen left to join Tyco, said last week that it may look to sell or spin-off its struggling cell-phone unit.

There has been speculation that Time Warner (TWX, Fortune 500), my parent company, may fully spin-off its Time Warner Cable division and could also spin-off or sell its online unit AOL.

Some have argued that the best way for Yahoo (YHOO, Fortune 500) to fend off the takeover advances of Microsoft (MSFT, Fortune 500) would be to split the company up.

And there has also been chatter that the reorganization announced at retailer Sears (SHLD, Fortune 500) last month could be a prelude to a break-up. Sears also owns Kmart and Lands' End.

It's undeniable that many companies went on acquisition binges during the 1990s and earlier part of the decade and are now paying the price for moves that did not pan out.

But Tyco is showing that breaking up, unlike what Neil Sedaka sang, is not just easy to do. It's often the right thing to do.

What do you think? Which big corporations would be better off breaking up?