Rationalization of Conglomerate Valuation: A Case Study of General Electric

Henrik Hvid Thøgersen & Peter Tuborgh Arnth Nielsen

Student thesis: Master thesis


The conglomerate has been a widely debated topic in academic research since the late 1960s. With neo-classical and managerial scholars on either side, diverging evidence has been presented on the effect of diversification and mergers on shareholder value. The heterogeneity of these empirical results paves the way for causal rationalizations that form the contemporary theories on conglomerate valuation. This is the point of departure for the thesis, which investigates these theories and tests them on a conglomerate case study. To frame the analysis, two simplified tests are performed to establish the relevance of conglomerates in today’s corporate environment. Insinuating a valuation discount for U.S. conglomerates, in general, and for the case company, General Electric, the thesis attempts to validate the latter by conducting an analysis and valuation of the company. By adhering to publicly available data, the analysis scrutinizes strategic, accounting, governance and financial aspects of the case company, forming the foundation for a valuation. Applying two types of multiples analysis, this thesis estimates General Electric’s implied share price as of March 2nd, 2018, and finds that the firm is trading at a conglomerate discount in the range of 2.4% to 46.0%. The main underlying rationales for this discount are, i) financial complexity and opacity of reporting, ii) mismatch between analyst expertise and conglomerate’s multifaceted operations, and iii) inefficient corporate governance and inactive shareholders. The fundamental sources of these rationales are discussed, with the authors suggesting the conglomerate’s financial division, GE Capital, and the absent disciplining of management as the ultimate roots. Conclusively, the thesis addresses the conglomerate structure’s raison d’être, signifying and preparing the stage for further empirical research on this topic.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages161
SupervisorsBjörn Preuss