What are the different methods used for calculating the holding company discount? What are the methods used to reduce this discount?
The holding company discount is different from the conglomerate discount and the liquidity discount. It can be defined as follows: a holding company trades at a discount when its market capitalisation is less than the sum of the investments it holds, which it usually is. Thus, a holding company will have a book value of equity of 100, although its market capitalisation will be 80. This means that the investor which buys one share in this holding company thinks that hes got a good deal since he paid 80 for something thats worth 100, although this value will never be achieved since the holding company will always be discounted unless it is liquidated. You should thus value each of the parts of the holding company and compare the results with the market capitalisation of the holding company.
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