A.

DEFINITION

A conglomerate is the combination of two or more corporations engaged in entirely different

businesses that fall under one corporate group, usually involving a parent company and
many subsidiaries. Often, a conglomerate is a multi-industry company. Conglomerates are often
large and multinational.

B. ADVANTAGES AND DISADVANTAGES

Advantages
• Diversification results in a reduction of investment risk. A downturn suffered by one subsidiary, for instance,
can be counterbalanced by stability, or even expansion, in another division.
• A conglomerate creates an internal capital market if the external one is not developed enough. Through the
internal market, different parts of conglomerate allocate capital more effectively.
• A conglomerate can show earnings growth, by acquiring companies whose shares are more discounted than
its own.
Disadvantages
 The extra layers of management increase costs.
 Accounting disclosure is less useful information, many numbers are disclosed grouped, rather than separately
for each business.
 Conglomerates can trade at a discount to the overall individual value of their businesses because investors
can achieve diversification on their own simply by purchasing multiple stocks.
 Culture clashes can destroy value.
 Inertia prevents development of innovation.
 Lack of focus, and inability to manage unrelated businesses equally well.
 Brand dilution where the brand loses its brand associations with a market segment, product area, or quality,
price or cachet.
C. MEDIA CONGLOMERATES

• Time Warner included several tenuously linked businesses during the 1990s and 2000s, including
Internet access, content, film, cable systems and television. Their diverse portfolio of assets allowed for
cross-promotion and economies of scale.
• Clear Channel Communications, a public company, at one point owned a variety of TV and radio
stations and billboard operations, together with a large number of concert venues across the U.S. and a
diverse portfolio of assets in the UK and other countries around the world. The concentration
of bargaining power in this one entity allowed it to gain better deals for all of its business units.
• Quebecor Media, a Canadian company controlling a subset of TV and radio stations, print magazines and
newspaper, software company and a 4-play telecom company