Step1:Ifthecompanyhasanymajoritycrossholdings,use
thefinancial statementsthat isolate theparent companyto
valuetheparentcompany.Ifonlyconsolidatedstatementsare
available, strip the subsidiary’s numbers from the
consolidatedstatement,andthenvaluetheparentcompanyas
astandaloneentity,andestimatethevalueoftheequityinthe
parent company by adding back cash and subtracting debt.
Step 2:Valueeach ofthesubsidiariesin which theparent
companyhasholdingsasindependentcompanies,usingrisk,
cashflow,andgrowthassumptionsthatreflectthebusinesses
that the subsidiaries operate in. Value the equity in each
subsidiary.
Step3:Tovaluetheequityintheparentcompanywiththe
cross holdings incorporated into the estimate, add the
proportionalshare ofeachsubsidiary’sequity(estimatedin
step2)to thevalueofequityin theparentcompany(from
Step 1).
ILLUSTRATION 10.7: Valuing Holdings in Other
Companies
Segovia Entertainment operates in a wide range of
entertainmentbusinesses.Thefirmreported$300millionin
operating income (EBIT) on capital invested of $1,500
millioninthecurrentyear;thetotaldebtoutstandingis$500
million.Aportionof theoperating income($100 million),
capitalinvested($400million),and debtoutstanding ($150
million)representSegovia’sholdingsinSevilleTelevison,a
televisionstationowner.Segoviaownsonly51%ofSeville,
and Seville’s financials are consolidated with Segovia.