Conglomerate discount

A conglomerate discount refers to the tendency of markets to value a diversified group of businesses and assets at less than the sum of its parts. A conglomerate, by definition, owns a controlling stake in a number of smaller companies that operate independently of other business divisions.

1. How much is conglomerate discount?
2. Why are conglomerates discounted?
3. Is there really no conglomerate discount?
4. What does a conglomerate do?
5. What is a premium conglomerate?
6. What is a HoldCo discount?
7. Are conglomerates good for the economy?
8. Is Amazon a conglomerate?
9. How do you evaluate conglomerates?
10. Is it a holding company?
11. What is the diversification discount?
12. What is diversification premium?
13. What is an example of conglomeration?
14. Can a conglomerate be an LLC?
15. What is a conglomerate strategy?

How much is conglomerate discount?

The conglomerate discount is usually calculated by adding estimations of the intrinsic values of each of the subsidiary companies in a conglomerate and subtracting the conglomerate's market capitalization from that sum. See Sum-of-the-parts analysis.

Why are conglomerates discounted?

Conglomerate discount refers to the tendency of markets to value a company with a diversified group of business at less than the sum of its parts. ... If the sum of the parts is greater than the whole, then there is a discount.

Is there really no conglomerate discount?

We first show that the conglomerate discount in fact disappears when we account for endogeneity in a Heckman selection model. However, when we account for fixed effects, the conglomerate discount remains statistically and economically significant, also in a Heckman selection-model or instrumental variables framework.

What does a conglomerate do?

A conglomerate is a corporation that is made up of a number of different, sometimes unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies all of whom conduct business separately and independently.

What is a premium conglomerate?

Specifically, premium conglomerates invest in companies with similar competitive strategies and underlying economics. Then they put systems and structures in place to ensure that the businesses are all run the same way and that line managers are strictly accountable for results.

What is a HoldCo discount?

A holding company discount comes into play when holding companies sell assets or break themselves up into their constituent parts. In other words, holding companies can usually sell their assets for fair market value, rather than at a discount.

Are conglomerates good for the economy?

Conglomerates are not good for the economy. Using the Republic of Korea as an example, conglomerates known as chaebols have been propped up as “too big to fail” and have been found to foster widespread, corrupt business practices and eliminate the growth of smaller companies.

Is Amazon a conglomerate?

Originally a trailblazing digital-first, consumer-centric online bookseller, Amazon is morphing into a conglomerate in all but name. Conglomeration is a deeply unfashionable business model, so the company Jeff Bezos created 27 years ago does not describe itself as such.

How do you evaluate conglomerates?

The size of a conglomerate discount can be measured by comparing the market value of the company (the whole) to the value of its businesses (sum of the parts). While the former is observable, the latter must be estimated, usually using comparable multiples.

Is it a holding company?

A holding company is a parent business entity—usually a corporation or LLC—that doesn't manufacture anything, sell any products or services, or conduct any other business operations. Its purpose, as the name implies, is to hold the controlling stock or membership interests in other companies.

What is the diversification discount?

Share. Recent work suggests that shares of diversified firms sell at a discount, possibly because managerial self-interest makes it difficult or impossible to direct internal cash flows to their most profitable use.

What is diversification premium?

A positive excess value of group-affiliated companies indicates that group affiliation (or group-level diversification) enhances the value of a firm beyond that of its stand-alone peers—in other words, a diversification premium. A negative excess value indicates a diversification discount.

What is an example of conglomeration?

Examples of conglomerates are Berkshire Hathaway, Amazon, Alphabet, Meta (formerly Facebook), Procter & Gamble, Unilever, Diageo, Johnson & Johnson, and Warner Media. All of these companies own many subsidiaries.

Can a conglomerate be an LLC?

All conglomerates are corporations, but not all corporations are conglomerates. ... Corporations may or may not have subsidiaries. To become a conglomerate, a company must first register as a corporation. Conglomerates can be an S-Corp, C-Corp, or a Limited Liability Company, or LLC.

What is a conglomerate strategy?

a growth strategy in which a company seeks to develop by adding totally unrelated products and markets to its existing business.