Conglomerate discount

A conglomerate discount is a discount that can be observed in stock market trading on the presumed " intrinsic value " of a large company that operates in different sectors, i.e. a large conglomerate . Such discounts are often of the order of 10 to 20%, but can also go far beyond that.

The term conglomerate discount is applicable

in connection with a financial analysis or company valuation , which calculates and postulates a company value. Then either a general conglomerate discount can be applied to this value, or a lower current market value is declared with a presumed conglomerate discount.
as an explanation for a price increase in the event of an expected or completed split of a conglomerate. For example, ThyssenKrupp shares rose by around 60% in the first half of 2006 as part of a corresponding restructuring of the company, although this was supported by an overall positive mood on the stock market.

A conglomerate discount is therefore not a fact, but a hypothetical calculation variable or a hypothetical explanation for a capital market phenomenon . It is related to suspected hidden reserves at group level that would or would be released ("lifted") through a break-up of the group.

The reasons for the discount are given in the financial press, for example, as the more complex management of conglomerates and the invisibility of the growth potential of individual company areas (see also price-earnings-growth ratio ).

Scientific research

A study examining conglomerate discounts based on transaction cost theory came to the conclusion that the discounts are not justified from the perspective of fundamental analysis, i.e. that this is a market inefficiency.

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↑ "Europe's conglomerates are looking for clear contours", Stefan von Borstel in the Tagesspiegel of January 4, 2000 Europe's conglomerates are looking for clear contours, Tagesspiegel of January 4, 2000 ( Memento of March 10, 2007 in the Internet Archive )
^ "Ricke ends the Ron Sommer chapter" - strategic realignment of Deutsche Telekom , Welt am Sonntag from October 10, 2004 [1]
^ "Conglomerate discount and transaction cost theory", Andreas Funke, dissertation at the University of Freiburg, ISBN 3-8350-0370-4

[1] "Europe's conglomerates are looking for clear contours", Stefan von Borstel in the Tagesspiegel of January 4, 2000 Europe's conglomerates are looking for clear contours, Tagesspiegel of January 4, 2000 ( Memento of March 10, 2007 in the Internet Archive )

[2] "Ricke ends the Ron Sommer chapter" - strategic realignment of Deutsche Telekom , Welt am Sonntag from October 10, 2004 [1]

[3] "Conglomerate discount and transaction cost theory", Andreas Funke, dissertation at the University of Freiburg, ISBN 3-8350-0370-4