What Is a Conglomerate?

What Is a Conglomerate?

Let me tell you directly: a conglomerate is a corporation that includes several different, sometimes unrelated, businesses. In this setup, one company owns a controlling stake in several smaller companies, and each conducts its business separately and independently.

You'll see that conglomerates often diversify business risk by operating in many different markets, though some choose to stick to a single-sector industry.

Key Takeaways

Understand this: a conglomerate is a corporation composed of several different, independent businesses. One company owns a controlling stake in smaller companies that each handle their operations separately. These conglomerates can form through mergers or acquisitions.

History of Conglomerates

Conglomerates are large parent companies with smaller independent entities that might operate across multiple industries. Each subsidiary runs independently of the others, but their managers report to the parent company's senior management. Many of these are multinational and multi-industry corporations.

There was a conglomerate boom in the 1960s. Low interest rates made leveraged buyouts easier for managers of big companies to justify, as the money was cheap. As long as profits exceeded loan interest, the conglomerate got a return on investment. Synergies grew through combining companies, products, and markets, justifying mergers and acquisitions. The boom peaked around 1980 when interest rates rose with inflation.

Sometimes, purchased companies don't improve performance. If mismanaged or misunderstood by the parent, they can drag down the whole corporation's bottom line. In response to falling profits, conglomerates might divest those companies, downsizing and returning to core businesses or operating as shell corporations.

1968 was the peak year of the conglomeration trend in the United States, with around 4,500 mergers and 10 of the country's 200 largest companies being conglomerates at that time.

Forming a Conglomerate

Acquisitions happen when one company buys another. If the target is large enough, it might not just become a subsidiary; instead, it could merge with the acquiring company, combining talent, assets, resources, and personnel into a new legal entity. For example, a conglomerate merger occurred when The Walt Disney Company merged with the American Broadcasting Company (ABC) in 1995.

Expansions involve corporate restructuring and reorganization, sometimes creating a parent company to own various smaller ones. In 2015, Google Inc. restructured, with the corporate parent becoming Alphabet and Google turning into a separate subsidiary.

Extensions mean expanding a family business or a historic, one-sector business into new industries or areas. Berkshire Hathaway started from two 19th-century Massachusetts cotton mills that merged in 1955. Warren Buffett gained control in 1965, turning it into a holding company for investing in other businesses rather than manufacturing products or providing services.

Advantages and Disadvantages

Holding many companies in different industries can boost a conglomerate's bottom line. Poorly performing companies get offset by stronger sectors. Cyclical companies can be balanced by counter-cyclical or noncyclical ones. The parent can cut costs by sharing fewer inputs across subsidiaries. Companies owned by conglomerates access internal capital markets, allowing better growth. Conglomeration might provide immunity from takeovers of the parent company.

Economists note that the size of conglomerates can hurt their stock value, known as the conglomerate discount. The sum of the individual companies' values is often greater than the conglomerate's stock value by up to 15%. Conglomerates can become so diversified and complicated that they're too challenging to manage efficiently.

The financial health of a conglomerate is hard for investors, analysts, and regulators to evaluate. Some economists argue that large, far-flung conglomerates become inefficient and costly to maintain, eroding shareholder value. Failing conglomerates reduce businesses under management to a few choice subsidiaries through divestiture and spinoffs.

The parent company may reduce risks of being in a single market by becoming a conglomerate diversified across several industry sectors.

Examples

You can find conglomerates in industries like manufacturing, media, or food. A media conglomerate might own several newspapers, then purchase television and radio stations, and book publishing companies. A food conglomerate could start with potato chips, diversify by buying a soda company, and expand by acquiring other food product makers. Conglomeration is the process where a parent company acquires subsidiaries to create a conglomerate.

Moët Hennessy Louis Vuitton (LVMUY), or LVMH, began as a family business in 1854 as a luggage and leather goods maker named after Louis Vuitton. It resulted from a merger between Vuitton and wine and spirits company Moët Hennessy. LVMH is the holding company for 75 subsidiaries in six sectors, from jewelry (Tiffany & Co.) and cosmetics (Givenchy Parfums) to publications (Le Parisien) and designer clothing (Fendi).

Warren Buffett’s Berkshire Hathaway (BRK.A) has managed companies in plane manufacturing, textiles, insurance, and real estate. Buffett handles capital allocation and gives companies near-total discretion in managing their business. Berkshire Hathaway has majority stakes in over 50 companies and minority holdings in dozens more.

Foreign Conglomerates

In Japan, conglomerates are called keiretsu, where companies own small shares in one another and center around a core bank. This structure is defensive, protecting against wild stock market swings and hostile takeovers. Mitsubishi is an example of a keiretsu model.

South Korea’s conglomerates are chaebol, family-owned companies where the president's position is inherited by family members, giving them more control than shareholders or board members. Examples include Samsung, Hyundai, and LG.

What Company Is the Biggest Conglomerate?

As of February 10, 2025, the biggest global conglomerate by market value is Samsung, with a market capitalization of $254.87 billion.

Is Meta a Conglomerate?

Meta Platforms Inc. (META), the parent of Facebook, can be considered a conglomerate. It has acquired firms like Instagram, WhatsApp, Oculus VR, Onavo, and Beluga.

What Is a Multinational Conglomerate?

A multinational conglomerate owns other companies or businesses in at least one country other than its headquarters. It's similar to a multinational corporation (MNC) but not the same, as an MNC might have subsidiaries, operations, or holdings in foreign nations without them being separate companies.

The Bottom Line

A conglomerate is a corporation made up of several different, independent businesses. One company owns a controlling stake in several smaller companies, all conducting business separately and independently.