A conglomerate is also a classification
of a corporation
a corporation that has many business
activities. This means that rather being focused
on one line of business (Eg sewage processing
), it has activities either in one sector (say, utilities
), or many different areas (The prime example of this is General Electric
Conglomerates were very fashionable in the eighties, largely because people believed in asset stripping and efficient markets. Asset stripping made small corporations targets, while large corporations were too expensive to buy up and dismantle. Conglomerates often tended to result from corporations buying up part of the operations of these corporate victims.
These days, attitudes are more mixed; in fact, where every finance house worth the name used to have a Conglomerates Analyst, these days some of the receptionists/switchboard operators won't even have heard of a conglomerate (Source: The Financial Times). For instance, Koninklijke Philips Electronics NV these days trades at a price that some analysts consider a small discount; these same analysts feel that it is an unfocused conglomerate. To an extent this is true: it has to weigh the needs of all of its businesses when channelling funds.
Philips also exemplifies the other side of the argument for conglomerates. As I write this, Philips has lost money for the last 6 quarters. If everything goes tits-up it can survive by selling its unprofitable businesses to rivals, and keeping the profitable ones. In the meantime, these businesses survive the rough times (Yeah, I know that almost anyone old enough to contribute to e2 can remember at least one fairly harsh recession, but it's relatively tough at the minute), where separately they might fail.
The final argument in favour of conglomerates is that they can receive economies of scale. In practice, this doesn't really happen, as the businesses are separate business entities. An example is the fact that Philips' consumer electronics division has only just started using Philips Semiconductors' components in their TVs.
In summary corporations are like ships: Big ones are harder to steer, but also harder to stop.