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Encyclopedia > Conglomerate (company)

Conglomerate is the term used to describe a large company which consists of divisions of often seemingly unrelated businesses. Look up company in Wiktionary, the free dictionary. ... In economics, a business is a legally-recognized organizational entity existing within an economically free country designed to sell goods and/or services to consumers, usually in an effort to generate profit. ...

Contents

History

The English East India Company can be considered to be one of the earliest conglomerate groups; originally a trade enterprise established to ship goods from the Far East to the United Kingdom, the East India Company grew into a powerful economic entity embracing economic ventures focused on commerce and manufacturing. The British East India Company, popularly known as John Company, was founded by a Royal Charter of Queen Elizabeth I on December 31, 1600. ... The far east as a cultural block includes East Asia, Southeast Asia, Northeast Asia and South Asia. ...


The end of the First World War caused a brief economic crisis in Weimar Germany, permitting enterpreneurs to buy up varied businesses at rock-bottom prices. The most successful, Hugo Stinnes, established the most powerful private economic conglomerate in 1920's Europe - Stinnes Enterprises - which embraced sectors as diverse as manufacturing, mining, shipbuilding, hotels, newspapers, and an assortment of other economic enterprises. Ypres, 1917, in the vicinity of the Battle of Passchendaele. ... The period of German history from 1919 to 1933 is known as the Weimar Republic (in German Weimarer Republik). It is named after the city of Weimar, where a national assembly convened to produce a new constitution after the German monarchy was abolished following the nations defeat in World... Categories: People stubs ...


Conglomerates were popular in the 1960s due to a combination of low interest rate(s) and a repeating bear/bull market, which allowed the conglomerates to buy companies in leveraged buyouts, sometimes at temporarily deflated values. Famous examples of the 1960s conglomerators include Ling-Temco-Vought, ITT Corporation, Litton Industries, Textron, Teledyne, and Gulf and Western Industries. As long as the target company had profits greater than the interest on the loans, the overall return on investment (ROI) of the conglomerate appeared to grow. A Corsair II aircraft made by Ling-Temco-Vought. ... For other uses, see ITT (disambiguation). ... Litton Industries was a large defense contractor in the United States, bought by the Northrop Grumman Corporation in 2001. ... Founded in 1923 as the Special Yarns Company by Royal Little, Textron NYSE: TXT, today is a multi-industry company with a portfolio of familiar brands such as Bell Helicopter, E-Z-GO, Cessna Aircraft, and Greenlee, among others. ... Teledyne (NYSE: TDY) is an industrial conglomerate primarily based in the United States but with global operations. ... Gulf and Western Industries, Inc. ... In finance, the return on investment (ROI) or just return is a calculation used to determine whether a proposed investment is wise, and how well it will repay the investor. ...


For many years this was enough to make the company's stock price rise, as companies were often valued largely on their ROI. The aggressive nature of the conglomerators themselves was enough to make many investors, who saw a "powerful" and seemingly unstoppable force in business, buy their stock. High stock prices allowed them to raise more loans, based on the value of their stock, and thereby buy even more companies. This led to a chain reaction, which allowed them to grow very rapidly. A chain reaction is a sequence of reactions where a reactive product or by-product causes additional reactions. ...


However, all of this growth was somewhat illusory. As soon as interest rates started to rise in order to offset inflation, the profits of the conglomerates fell. Investors also noticed that the companies inside the conglomerate were growing no faster than they had before they were purchased, whereas the rationale for buying a company was often that "synergies" would lead to more efficiency. By the late 1960s they were frowned on by the market, and a major sell off of their shares ensued. In order to keep the companies going, many conglomerates were forced to shed the industries they had purchased recently, and by the mid-1970s most had been reduced to shells.[citation needed] The conglomerate fad was subsequently replaced by newer ideas like focusing on a company's core competency. For other uses, see FAD (disambiguation). ...


Cash flush during the 1980s, GE also moved into financing and financial services, which in 2005 accounted for about 45% of the company's net earnings. GE also owns a majority of NBC Universal, which owns a major American television network. In some ways GE is the opposite of the "typical" 1960s conglomerate: the company was not highly leveraged, and when interest rates went up they were able to turn this to their advantage as it was often less expensive to lease from GE than buy new equipment using loans. United Technologies has also proven to be an extremely successful example of a conglomerate. Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. ... Financial services is a term used to refer to the services provided by the finance industry. ... NBC Universal is a media and entertainment conglomerate formed in May 2004 by the combination of General Electrics NBC with Vivendi Universal Entertainment, part of Vivendi Universal. ... In finance, leverage (or gearing) is using given resources in such a way that the potential positive or negative outcome is magnified. ... An interest rate is the rental price of money. ... United Technologies Corporation (UTC) (NYSE: UTX) is a major multinational corporation based in Hartford, Connecticut. ...


Another example of a successful conglomerate is Berkshire Hathaway, which used its insurance surplus to invest in a variety of manufacturing and service businesses. Berkshire Hathaway (NYSE: BRKA, NYSE: BRKB) is a holding company headquartered in Omaha, Nebraska, U.S., that oversees and manages a number of subsidiary companies. ...


The best known British conglomerate was Hanson plc. It followed a rather different timescale than the U.S. examples mentioned above, as it was founded in 1964 and ceased to be a conglomerate when it split itself into four separate listed companies between 1995 and 1997. Hanson plc is a British based international building materials company, headquartered in London. ...


Mitsubishi is one of Japan's best known conglomerates, reaching from automobile manufacturing to the production of electronics such as televisions. For information on Mitsubishi brand computer monitors, see NEC-Mitsubishi Electronics Display of America Inc. ...


One of the best known German conglomerates, and one of the world's largest is Siemens AG. Siemens redirects here. ...


The era of Licence Raj (1947-1990) in India created some of Asia's largest conglomerates such as the Tata Group, Kirloskar Group, Reliance Industries and the Aditya Birla Group. Licence Raj refers to the elaborate licences, regulations and the accompanying red tape, that were required to set up business in India between 1947-1990. ... Year 1947 (MCMXLVII) was a common year starting on Wednesday (link will display full 1947 calendar) of the Gregorian calendar. ... Year 1990 (MCMXC) was a common year starting on Monday (link displays the 1990 Gregorian calendar). ... The Tata Group is Indias largest conglomerate, with revenues in 2005-06 of Rs. ... The introduction to this article provides insufficient context for those unfamiliar with the subject matter. ... Reliance Industries Limited is Indias largest private sector company with a turnover of 744 billion rupees (US$16. ... Aditya Birla Group is one of Indias largest business groups. ...


The 101st conglomerate business was set up by jamie gibbs in 1903. It was to produce a baseline.


Potential advantages

To modern business analysts, the best argument for conglomerate organizational form is that it may allow capital to be allocated in a more efficient way. For example, a hypothetical conglomerate consists of a candy store and an internet website. Suppose the candy store has high cash flow, but very few profitable investment opportunities. The website has low cash flow, but lots of good investment projects. By combining the businesses together, the cash from the candy store can be used to make profitable investments that would otherwise not be made in the web site. The main question associated with this strategy is why this improves upon a market-based allocation of capital. That is, if the entities were standalone, then presumably the investors in the candy store could receive dividends, and then reinvest those dividends in the startup. If this market-based mechanism works well, then all profitable internet startup investments can be made without having the two entities be under common ownership. Research suggests that financial markets may not always operate efficiently due to the presence of transaction costs and asymmetric information. If this problem is severe, then the common ownership of the assets might yield a more efficient allocation of capital. [1] In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange. ... In economics, information asymmetry occurs when one party to a transaction has more or better information than the other party. ...


Media conglomerates

In her 1999 book No Logo, Naomi Klein provides several examples of mergers and acquisitions between media companies designed to create conglomerates for the purposes of creating synergies between them: No Logo: Taking Aim at the Brand Bullies is a book by Canadian journalist Naomi Klein. ... Naomi Klein is a Canadian journalist, author and activist well known for her political analyses of corporate globalization. ... Synergy (from the Greek synergos, συνεργός meaning working together, circa 1660) refers to the phenomenon in which two or more discrete influences or agents acting together create an effect greater than that predicted by knowing only the separate effects of the individual agents. ...

  • Time Warner (now merged with AOL) have a series of tenuously linked business including internet access, internet content provision and music, film and traditional publishing. Their diverse portfolio of assets allow cross-promotion and economies of scale. (However, Time Warner has since divested its music and book publishing interests, and there is growing pressure to spin off its Time Warner Cable and AOL units.)
  • Clear Channel Communications, a quoted company, at one point owned a variety of TV and radio stations, 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. For example, the promise of playlisting (allegedly, sometimes, coupled with the threat of blacklisting) on its radio stations was used to secure better deals from artists performing in events organized by the entertainment division. These policies have been attacked as unfair and even monopolistic, but are a clear advantage of the conglomerate strategy. On December 21, 2005, Clear Channel completed the spin-off of Live Nation. Live Nation owns the events and concert venues previously owned by Clear Channel Communications.

Time Warner Inc. ... Not to be confused with clear channel radio stations, which are AM radio stations with certain technical parameters. ... A stock market is a market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures). ... Motto: (Out Of Many, One) (traditional) In God We Trust (1956 to date) Anthem: The Star-Spangled Banner Capital Washington D.C. Largest city New York City None at federal level (English de facto) Government Federal constitutional republic  - President George Walker Bush (R)  - Vice President Dick Cheney (R) Independence from... This article is about economic monopoly. ... is the 355th day of the year (356th in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... Live Nation NYSE: LYV is a concert company based in the United States of America. ...

See also

3M ABB Aditya Birla Group Berkshire Hathaway Clear Channel Emerson Fiat Group Fortune Brands General Electric ITT KeyCorp Kirloskar Group Maxxam Mitsubishi News Corporation Norsk Hydro Raytheon Reliance Industries Siemens AG Sime Darby Sony Tata Group Textron ThyssenKrupp Time Warner Tyco United Technologies Viacom Category: ... A holding company is a company that owns part, all, or a majority of other companies outstanding stock. ...

References

  1. ^ David Besanko, David Dranove, Mark Shanley and Scott Schaefer: "Economics of Strategy". Chapter 5 ("Diversification")

External links

  • Conglomerate Monkeyshines, An example of how conglomerates were used in the 1960s to manufacture earnings growth

  Results from FactBites:
 
conglomerate - Search Results - MSN Encarta (132 words)
Conglomerate (business), in business, a corporation consisting of several unrelated firms whose merger increases and diversifies company assets....
Conglomerate (geology), aggregate of sedimentary rock fragments cemented in a matrix of silica, calcite, or limonite.
alabaster, basalt, chalk, conglomerate, flint, gneiss, granite, hornblende, lava, limestone, malachite, marble, pumice, quartzite, sandstone, schist,...
conglomerate - Information from Reference.com (410 words)
conglomerate, corporation whose asset growth, often very rapid, comes largely through the acquisition of, or merger with, other firms whose products are largely unrelated to each other or to that of the parent company.
conglomerate, in geology, sedimentary rock composed largely of pebbles or other rounded particles whose diameter is larger than 2 mm (.08 in.).
Essentially a cemented gravel, conglomerates are formed along beaches, as glacial drift, and in river deposits.
  More results at FactBites »

 
 

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