Conglomerate discount is an economic concept describing a situation when the market values a diversified group of businesses and assets at less than the sum of its parts.
Therefore, the market penalizes a multi-division firm and attaches a lower multiple to its earnings and cash flows, thus creating the discount.
Only several star performers, such as Berkshire Hathaway, have managed to escape the market’s critical assessment of overdiversification.
This situation may be explained by the fact that in Asian countries a big conglomerate with political connections and an understanding of how to operate in a difficult market can spread its expertise across many industries.
Recent examples of Deconglomeration in the US include ITT, Motorola, Fortune Brands, Marathon Oil, Genworth, and Sara Lee Corporation.