- Seville Televisionis a publicly traded firmwith a
market value of equity of $600 million. - LatinWorksisaprivatefirmwithanestimatedvalue
forequityof$400million;thefirmhas$100million
in debt outstanding and $25 million as a cash balance.
Ifweestimatetheunadjustedenterpriseandfirmvaluesfor
Segoviausingitsconsolidatedfinancialstatements,wewould
obtain the following.
Thisvalueiscontaminatedbecausethemarketvalueofequity
reflects the 60% holding in Seville and the10% stakein
LatinWorks, but the debt and the cash include 100% of
Seville’s holdings and none of the same for LatinWorks.
Theconventionalwayofadjustingatleastforthemajority
holdingistoaddbackthebookvalueofminorityinterestto
ostensiblybringintheotherequityinvestor’sinterestsinthe
holding.
Ifthis is supposedto measurethecombined valuesof the
parentandthesubsidiary,itfallsshortbecausetheaccounting
measure oftheminority interest does not matchup to the
marketvalue.Infact,toadjustforthefullmarketvalueofthe
minority interest, we would have to do the following: