Conglomeratization's Effect on the Weighted Cost of Capital: A Case Study of the Net Asset Value Discount of Aker ASA

Tobias Sørheim Mørland & Petter Westgaard

Student thesis: Master thesis


The stock of Aker ASA currently trades a price that values the company at a considerable discount when compared to the net asset value of the corporation’s underlying investments.
This phenomenon is not unique to Aker ASA. The mismatch between market value and underlying investments is widely known as the “conglomerate discount”, which can be observed for a number of diversified firms globally.
What is however somewhat unique to Aker ASA, is the fact that a vast majority of the corporation’s investments are publicly traded companies on the Oslo Stock Exchange. The implication of this is that financial data on the various segments of Aker ASA as a corporation are available. This is often not the case, and the opportunity for a new approach to explaining the phenomenon is present.
In order to quantify the effect of being a company held by a conglomerate, the authors attempt to incorporate existing qualitative theories into the calculation of each of Aker ASAs industrial investments’ weighted average cost of capital. By constructing models discounting the future cash flows of each of Aker ASA’s subsidiaries, we are then able to test the effects of different approaches to the estimation of WACC.
This paper’s analysis indicate that the effect of being a subsidiary of a conglomerate dramatically lowers the discount rate for future cash flows. The findings further indicate that the market’s discount rate for the actual conglomerate itself may be incorrect. As such, this paper argues that the current discount in market value on Aker ASA’s equity represents an inefficiency in the market.

EducationsMSc in International Business, (Graduate Programme) Final ThesisMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2018
Number of pages159