Greenway Industries is a major multinational conglomerate. Its business units compete in a range of industries, including home appliances, pharmaceuticals, commercial real estate, and plastics manufacturing. Although its largest business unit, which produces kitchen appliances, is among the most profitable in the industry, it generates only 35 percent of the company's revenues. Which of the following is most likely true of Greenway's stock price?
A) It is valued at less than the sum of its individual business units.
B) It is valued at greater than the sum of individual business units.
C) It is valued at the exact sum of individual business units.
D) It is consistently lower than the industry average.

Question

Quizplus · Accepted Answer

Greenway Industries has pursued an unrelated diversification strategy. Firms that pursue unrelated diversification are often unable to create additional value. They experience a diversification discount: The stock price of such highly diversified firms is valued at less than the sum of their individual business units.

Greenway Industries Is a Major Multinational Conglomerate