This may not be a new concept to you, but to those who are new to the business world it is an alien word.
The conglomerate is a type of corporation that consists of a several different, and sometimes unrelated businesses. In a conglomerate, a single company owns a controlling interest, where it holds a major portion of the stock, in a number of smaller companies.
The primary advantage and disadvantage of conglomerate businesses have to do with the size of the business.
It could be a blessing to the management team of a conglomerate to have a vast range of companies in different industries. It has the ability to grow as a company, as the access of other companies to the internal capital market enables the growth.
On the other hand, the size of a conglomerate weakens the value of the stock, a conglomerate is difficult to manage efficiently. There are issues of financial transparency and management makes the stock valued at a discount.
Investors, analysts, and regulators have a difficulty in discerning the financial health of a conglomerate. Innovation can stagnate due to the differences in company culture.
