A conglomerate is the term used to describe a large company that consists of seemingly unrelated business sections. Generally a company is a form of Business organization. The precise definition varies A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to This term may also be referred to as a multi-industry company.

Contents 1 History 2 Potential advantages 3 Potential disadvantages 4 Media conglomerates 5 See also 6 References 7 External links

History

The Dutch 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 Dutch Republic, the East India Company grew into a powerful economic entity embracing economic ventures focused on commerce and manufacturing. The Dutch East India Company ( Vereenigde Oost-Indische Compagnie or VOC in old-spelling Dutch, literally "United East Indian The Far East is a term often used by people in the Western world to refer to the countries of East Asia. "United Netherlands" redirects here For the "Kingdom of the United Netherlands" see United Kingdom of the Netherlands.

The end of the First World War caused a brief economic crisis in Weimar Germany, permitting entrepreneurs to buy up varied businesses at rock-bottom prices. World War I (abbreviated WWI; also known as the First World War, the Great War, and the War to End All The term Weimar Republic ( ˈvaɪmarɐ repuˈbliːk is used by historians to signify the democratic and Republican period of Germany from 1919 to 1933 The most successful, Hugo Stinnes, established the most powerful private economic conglomerate in 1920s Europe - Stinnes Enterprises - which embraced sectors as diverse as manufacturing, mining, shipbuilding, hotels, newspapers, and an assortment of other economic enterprises. Hugo Stinnes ( February 12, 1870 - April 10, 1924) was a German industrialist and politician born in Mülheim, in the Ruhr Valley

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. A leveraged buyout (or LBO, or highly-leveraged transaction (HLT or "bootstrap" transaction occurs when a Financial sponsor acquires a controlling interest Famous examples of the 1960s conglomerators include Ling-Temco-Vought, ITT Corporation, Litton Industries, Textron, Teledyne, and Gulf and Western Industries. Ling-Temco-Vought was a large US conglomerate. History In 1947 entrepreneur James Ling founded his own Dallas electrical contracting business ITT Corporation, is a global diversified manufacturing company with 2007 revenues of $9 Named after inventor Charles Litton Sr, Litton Industries was a large defense contractor in the United States, bought by the Northrop Grumman Corporation Founded in 1923 as the Special Yarns Company by Royal Little, Textron, today is a multi-industry company with a portfolio of familiar brands such as Bell Helicopter Teledyne Technologies Inc is an industrial conglomerate primarily based in the United States but with global operations Gulf and Western Industries Inc, for a number of years known as Gulf+Western, was an American conglomerate. 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. In Finance, rate of return ( ROR) also known as return on investment ( ROI) rate of profit or sometimes just return, is

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 to take place

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. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time 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. The conglomerate fad was subsequently replaced by newer ideas like focusing on a company's core competency.

Cash flush 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. The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Financial services refer to services provided by the finance industry. GE also owns a majority of NBC Universal, which owns a major American television network. NBC Universal is a media and Entertainment company formed in May 2004 by the combination of General Electric 's NBC with Vivendi Universal 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. In Finance, leverage (or gearing) is using given resources in such a way that the potential positive or negative outcome is magnified and/or enhanced Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets United Technologies has also proven to be an extremely successful example of a conglomerate. United Technologies Corporation (UTC ( is an American multinational conglomerate based in Hartford, Connecticut and is the 20th

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 ( for supervoting shares and for nonvoting shares is a conglomerate Holding company headquartered in Omaha, Nebraska

The best known British conglomerate was Hanson plc. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located Hanson plc (formerly Hanson Trust plc) is a British based international building materials company headquartered in London. 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.

In Japan, a different model of conglomerate, the keiretsu, envolved. A is a set of companies with interlocking Business relationships and shareholdings. 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. The, Mitsubishi Group of Companies, or Mitsubishi Companies is a Japanese conglomerate consisting of a range of autonomous businesses which share the Mitsubishi

In South Korea, Chaebol is a type of conglomerate owned and operated by a family. South Korea, officially the Republic of Korea and often referred to as Korea ( Korean: 대한민국 tɛː Chaebol (alternatively Jaebol, Jaebeol) refers to a South Korean form of business conglomerate. Chaebol is also inheritable as most of current presidents of Chaebol succeeded their fathers or grandfathers. Chaebol (alternatively Jaebol, Jaebeol) refers to a South Korean form of business conglomerate. Chaebol (alternatively Jaebol, Jaebeol) refers to a South Korean form of business conglomerate. Some of the well-known Korean Chaebols are Samsung, LG and Hyundai Kia Automotive Group. Chaebol (alternatively Jaebol, Jaebeol) refers to a South Korean form of business conglomerate. The Samsung Group ( Korean:, Samsung Guerup) is South Korea 's largest company or Chaebol and the world's largest conglomerate The Hyundai Kia Automotive Group (현대-기아 자동차 그룹 was formed through the merging of South Korea 's largest car company Hyundai Motor Company, and the

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 and 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) India, officially the Republic of India (भारत गणराज्य inc-Latn Bhārat Gaṇarājya; see also other Indian languages) is a country The Tata Group ( Hindi: टाटा समूह is a multinational conglomerate based in Mumbai, India. The Kirloskar Group (consisting of Kirloskar Brothers Limited, Kirloskar Oil Engines Kirloskar Ferrous Industries Kirloskar Pneumatic Company Kirloskar Ebara Pumps Reliance Industries Limited ( NSE: RELIANCE is India 's largest Private sector conglomerate (and second largest overall with an annual The Aditya Birla Group is a multinational corporation based in Mumbai, India and operations in 20 countries including Thailand, Laos,

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. In Economics and related disciplines a transaction cost is a Cost incurred in making an economic exchange In Economics and Contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better Information If this problem is severe, then the common ownership of the assets might yield a more efficient allocation of capital. ^[1]

Potential disadvantages

Lack of focus and inability to manage unrelated businesses equally well are the reasons to criticize conglomerates. As a result, conglomerates' stocks are usually penalized by the market. This phenomenon is called conglomerate discount. ^[2]

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:

• 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. No Logo Taking Aim at the Brand Bullies is a book by Canadian journalist Naomi Klein. Naomi Klein (b 8 May 1970, Montreal Quebec) is a Canadian Journalist, Author and activist well known for her Synergy (from the Greek el-Latn syn-ergo, el συνεργός meaning working together is the term used to describe a situation where the final outcome Time Warner Inc ( is the world's largest media and entertainment conglomerate, headquartered in New York City. 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. Clear Channel Communications is a media conglomerate company based in the United States. A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company The United States of America —commonly referred to as the The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The concentration of bargaining power in this one entity allowed it to gain better deals for all of its business units. Bargaining power is a concept related to the relative abilities of parties in a situation to exert influence over each other 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. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient On December 21, 2005, Clear Channel completed the spin-off of Live Nation. Events 69 - The end of the Year of the four emperors: Following Galba, Otho and Vitellius, Vespasian Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. Live Nation Inc is a live Events company based in Beverly Hills California. Live Nation owns the events and concert venues previously owned by Clear Channel Communications.

See also

• List of conglomerates
• Holding company
• Subsidiary
• Associate company
• Chaebol
• Keiretsu

References

External links

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

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