The split-up will help Gap to gain a sharpened focus on its business priorities but may also lead to reduction in diversification in the businesses.

Gap Inc., the American clothing and accessories company recently announced that it will be dividing in to two publicly traded companies. While one of the new companies will comprise of the Old Navy brand, the other, which is yet to be named, will include brands like Athleta and Banana Republic.

After the announcement, Gap’s share prices surged nearly 20% in after-hours trading.

Robert Fisher, Gap’s board chairman has been reported to say following a review by Gap’s board of directors that the business model and customers of Old Navy have progressively diverged from Gap’s specialty brands over time. Therefore each company now needs a different strategy to grow further.

The new company that is for now being referred to as NewCo, has been declared by Gap to be having an annual sales figure of around $9 billion. NewCo will be including Banana Republic, Hill City, Athleta, Intermix besides Gap’s namesake Gap brand.

On the other hand Old Navy is estimated to have annual sales of around $8 billion. Old Navy has been among the strongest within the company with successfully targeting shoppers on a budget, rivaling brands like T.J. Maxx and Ross Stores.

Gap has been reported to say that Art Peck, current CEO of Gap, will become chief executive of NewCo. Sonia Syngal, President and CEO of Old Navy would lead the stand-alone Old Navy.

Peck said in a statement that it is being anticipated that the spinoff should help both companies to function on a tailored operating structure and sharpen their strategic focus. The transaction, which is expected to be completed in 2020, is subject to final approval by the board of directors.

Though experts agree with the fact that the split-up will help Gap to gain a sharpened focus on its business priorities, they warn that it will also lead to reduction in diversification in the businesses. Remarkably, Old Navy led the Gap portfolio and accounted for 47% of Gap’s sales in 2018. Apparently Old Navy is one the fastest-growing major apparel brands and far outpaces Banana Republic and Gap Brand.