Conglomerate Discount

Conglomerates are big. Kinda by definition. They get volume discounts when they buy stuff...that's the good news. But the bad news is that they're in a ton of different and often hard-to-value businesses. Disparate ones. They aren’t specialized in just one thing, and some investors think that too much diversification is a detriment to their performance.

In some cases, the value of the company will trade on the market at less than the total value of all of its assets. That’s called a conglomerate discount, and a number of value investors or activist managers will target those companies as a way to buy cheap, and force sales of certain assets to generate higher returns for the stock.

Some think this is why we have fewer conglomerates than when we did during the 1960s...but that theory ignores the fact that most industries are dominated by just a handful of specialized giants that dominate market share.

So yeah...it's an economic phenomenon. In addition, the opposite economic situation can exist as well, where the company is valued at more than the sum of all of its companies and assets. That’s called a conglomerate premium.