Conglomerate

AAA

DEFINITION of 'Conglomerate'

A corporation that is made up of a number of different, seemingly unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. Each of a conglomerate's subsidiary businesses runs independently of the other business divisions, but the subsidiaries' management reports to senior management at the parent company.

The largest conglomerates diversify business risk by participating in a number of different markets, although some conglomerates elect to participate in a single industry - for example, mining.

INVESTOPEDIA EXPLAINS 'Conglomerate'

These are the two philosophies guiding many conglomerates:

1. By participating in a number of unrelated businesses, the parent corporation is able to reduce costs by using fewer resources.

2. By diversifying business interests, the risks inherent in operating in a single market are mitigated.

History has shown that conglomerates can become so diversified and complicated that they are too difficult to manage efficiently. Since the height of their popularity in the period between the 1960s and the 1980s, many conglomerates have reduced the number of businesses under their management to a few choice subsidiaries through divestiture and spinoffs.

RELATED TERMS
  1. Divestiture

    The disposal of a business unit through sale, exchange, closure, ...
  2. Megamerger

    The joining of two large corporations, typically involving billions ...
  3. Conglomerate Boom

    A rapid growth in the number of conglomerates, or big corporations ...
  4. Spinoff

    The creation of an independent company through the sale or distribution ...
  5. Conglomerate Discount

    A reference to the tendency of the stock market to undervalue ...
  6. Conglomerate Merger

    A merger between firms that are involved in totally unrelated ...
Related Articles
  1. Conglomerates: Cash Cows Or Corporate ...
    Investing Basics

    Conglomerates: Cash Cows Or Corporate ...

  2. Evaluating Firm Size In A Financial ...
    Professionals

    Evaluating Firm Size In A Financial ...

  3. Introduction To Investment Diversification
    Investing Basics

    Introduction To Investment Diversification

  4. Management Strategies From A Top CEO
    Professionals

    Management Strategies From A Top CEO

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center