Conglomerate (company)

From Wikipedia, the free encyclopedia
Jump to: navigation, search



Conglomerates were popular in the 1960s due to a combination of low interest rates and a repeating bear/bull market, which allowed the conglomerates to buy companies in leveraged buyouts, sometimes at temporarily deflated values. Famous examples from the 1960s include Ling-Temco-Vought,[1] ITT Corporation,[1] Litton Industries,[1] Textron,[1] Teledyne,[1] Gulf+Western,[1] AT&T, and Transamerica. As long as the target company had profits greater than the interest on the loans, the overall return on investment of the conglomerate appeared to grow. Also, the conglomerate had a better ability to borrow in the money market, or capital market, than the smaller firm at their community bank. For many years this was enough to make the company's stock price rise, as companies were often valued largely on their return on investment. 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. However, all of this growth was somewhat illusory. When interest rates rose to offset inflation, conglomerate profits fell. Investors noticed that the companies inside the conglomerate were growing no faster than before they were purchased, whereas the rationale for buying a company was that "synergies" would provide efficiency. By the late 1960s they were shunned by the market, and a major sell-off of their shares ensued. To keep the companies going, many conglomerates were forced to shed the industries they had recently purchased, and by the mid-1970s most had been reduced to shells.[2] The conglomerate fad was subsequently replaced by newer ideas like focusing on a company's core competency. In other cases, conglomerates are formed for genuine interests of diversification rather than manipulation of paper return on investment. Companies with this orientation would only make acquisitions or start new branches in other sectors when they believed this would increase profitability or stability by sharing risks. Flush with cash during the 1980s, General Electric also moved into financing and financial services, which in 2005 accounted for about 45% of the company's net earnings. GE formerly owned a minority interest in NBCUniversal, which owns the NBC television network and several other cable networks. In some ways GE is the opposite of the "typical" 1960s conglomerate in that 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 a successful conglomerate.


Another example of a successful conglomerate is Warren Buffett's Berkshire Hathaway, a holding company which used surplus capital from its insurance subsidiaries to invest in a variety of manufacturing and service businesses.



The best known British conglomerate was Hanson plc. It followed a rather different timescale than the US 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.

In Hong Kong, two most well-known conglomerates are the Swire Group and Jardine Matheson, both are British-owned companies that have a history of over 100 years and have business interests that span across four continents with a focus in Asia. Swire Group (or Swire Pacific) controls a wide range of businesses, including property (Swire Properties), aviation (i.e. Cathay Pacific and Dragonair), beverages (bottler of Coca Cola), shipping and trading. Jardine Matheson operates businesses in the fields of property, finance, trading, retail and hotel (i.e. Mandarin Oriental).

In Japan, a different model of conglomerate, the keiretsu, evolved. Whereas the Western model of conglomerate consists of a single corporation with multiple subsidiaries controlled by that corporation, the companies in a keiretsu are linked by interlocking shareholdings and a central role of a bank. Mitsubishi is one of Japan's best known keiretsu, reaching from automobile manufacturing to the production of electronics such as televisions.

In China, many of country's conglomerates are state-owned enterprises, but there are a substantial number of private conglomerates. Notable conglomerates include Legend Holdings, Dalian Wanda Group, China Poly Group, Beijing Enterprises, and Fosun International. Fosun is currently China's largest privately owned conglomerate by revenue.[3]






  • The extra layers of management increase costs.[5]
  • Culture clashes can destroy value.[6][7]
  • Inertia prevents development of innovation.[8]
  • Lack of focus, and inability to manage unrelated businesses equally well.[9]


Media conglomerates[edit]


  • Quebecor Media, a Canadian company controlling a subset of TV and radio stations, print magazines and newspaper, software company and a 4-play telecom company

Internet conglomerates[edit]

Although a relatively new development, Internet conglomerates belong to the modern media conglomerate group, and play a major role within various industries, such as brand management. In most cases Internet conglomerates consist of corporations who own several medium-sized online or hybrid online-offline projects. In many cases, newly joined corporations get higher returns on investment, access to better business contacts, and better rates on loans from various banks.[citation needed]

Food conglomerates[edit]


  • The Phillip Morris group, which once was the parent company of Altria group, Phillip Morris International, and Kraft Foods had annual combined turnover of $80 bn.

See also[edit]


  1. ^ a b c d e f Holland 1989, pp. 57–64, 81–86.
  2. ^ [1] Hitachi, Ltd. - Company Profile, Information, Business Description, History, Background Information on Hitachi, Ltd.-Source-Reference for Business » Company History Index » Conglomerates
  4. ^ [2] Conglomerates: Cash Cows or Corporate Chaos?
  7. ^ Michelle C. Bligh (2006). "Surviving Post-merger ‘Culture Clash’: Can Cultural Leadership Lessen the Casualties?". Leadership 2 (4): 395–426. doi:10.1177/1742715006068937. 
  8. ^ "Innovation and Inertia". Stanford University's Entrepreneurship Center. 
  9. ^ [3] Definition of Conglomerate
  10. ^ [4] Conglomerate discount


External links[edit]
