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Definition

conglomerate

A conglomerate is a company that comprises multiple different corporations. The most common type of conglomerate is a parent company with one or more subsidiaries, which are partially or wholly-owned companies.

Corporations form conglomerates for a variety of reasons, including:

  • The desire to become involved in a business that is different from the company's main focus.
  • A desire to diversify so that, for example losses in one business may be offset by gains in another.
  • An intention to transition the company toward a new area of business.
  • Attractive revenues, either historical or projected, from the prospective subsidiary.
  • A need to protect company's established business from risks associated with the subsidiary.

When a conglomerate owns less than a controlling percentage of another company's voting stock, the second company is known as an associate or an affiliate.

Investopedia.com provides this example: 

"For example, the Walt Disney Corporation owns about a 40% stake in the History Channel, an 80% stake in ESPN and a 100% interest in the Disney Channel. In this case, the History Channel is an affiliate company, ESPN is a subsidiary and the Disney Channel is a wholly owned subsidiary company."

 

This was last updated in March 2013

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