Say Company A is almost exclusively a holding company, i.e. it has limited of its own operations but holds Company B (55%), Company C (62%) and Company D (70%), all of which are listed companies as well.
Now, the way I understand is, 100% of the assets and liabilities of each of Companies B, C and D will be listed on Company A's balance sheet. Will this not distort the Book Value of Company A? Since, it will not have 100% claims to the assets of the other three companies it holds. Is this the reason why holding companies/conglomerates with diversified listed subsidiaries have low P/BV values?
Second thing further to the above example. The market value (market cap) of Company A is rarely the sum of the parts of the market value of its holdings in Company B, C and D. When I add 55% of the market cap of B with 62% of the market cap of C and 70% of the market cap of D (discounting the net cash situation of Company A) and compare the sum of the above to the market cap of Company A...there is usually a large difference. Why is this the case?
Submitted April 23, 2017 at 05:12AM by learner1314 http://ift.tt/2oyvVZH
