A parent company is a corporation that has control over one or more other companies, which are referred to as subsidiaries. This control is typically achieved by owning more than 50% of the voting stock of the subsidiaries.
Parent companies can exert control and influence over their subsidiaries in various ways, such as making managerial decisions, determining corporate strategy, or dictating the use of resources. However, each subsidiary usually operates independently and maintains its own identity and brand.
There are several reasons why a company may choose to establish or acquire a subsidiary, including:
- Diversification: Owning subsidiaries in different industries can help a parent company spread its risk.
- Expertise: A parent company may acquire a subsidiary for its specific expertise or operations.
- Tax advantages: In some cases, a parent company may be able to reduce its tax liability through its subsidiaries.
- Regulatory reasons: Sometimes, regulatory requirements necessitate the formation of subsidiaries.
Examples of parent companies include Alphabet Inc., which is the parent company of Google, YouTube, and other companies; or Unilever, which is the parent company of many consumer brands such as Dove, Lipton, and Ben & Jerry’s.
It’s important to note that the financial performance of a parent company often depends heavily on the performance of its subsidiaries. For this reason, potential investors in a parent company should also consider the financial health and prospects of its subsidiaries.
Example of a Parent Company
Let’s consider a real-world example: The Walt Disney Company.
The Walt Disney Company is a well-known parent company that owns a vast array of subsidiaries spanning various industries. Here are just a few of Disney’s subsidiaries:
- Pixar Animation Studios: Acquired by Disney in 2006, Pixar is a renowned film studio responsible for producing critically acclaimed animated films such as “Toy Story,” “Finding Nemo,” and “Inside Out.”
- Marvel Entertainment: Disney acquired Marvel Entertainment in 2009, and with it, the rights to a vast catalogue of characters and the massively successful Marvel Cinematic Universe, which includes films like “The Avengers” and “Black Panther.”
- Lucasfilm: Acquired in 2012, Lucasfilm is the production company behind the “Star Wars” and “Indiana Jones” franchises.
- ESPN Inc.: Disney holds an 80% stake in ESPN, one of the world’s leading sports broadcasting networks.
- ABC Entertainment Group: This subsidiary operates the ABC Television Network, which broadcasts a variety of content including news, sports, and entertainment.
Each of these subsidiaries operates somewhat independently under their own brand, but they are ultimately controlled by The Walt Disney Company, the parent company. They contribute to Disney’s revenues and help diversify the company’s business operations across different sectors within the entertainment industry.