A series or takeovers can result in a parent company controlling a number of subsidiaries: smaller companies that it owns. When the subsidiaries operate in many different business areas, the company is known as a conglomerate.
But large conglomerates can become inefficient. Top executives often leave after hostile takeovers, and too much diversification means the company is no longer concentrating on its core business: its central and most important activity. Takeovers do not always result in synergy: combined production or productivity that is greater than the sum of the separate parts. In fact, statistics show that most mergers and acquisitions reduce rather than increase a company's value.
An inefficient conglomerate whose profits are too low can have a low stock price, and its market capitalization - the total market price of all its ordinary shares - can fall below the value of its assets, including land, buildings and pension funds. If this happens, it becomes profitable for another company to buy the conglomerate and either split it up and sell it as individual companies, or close the companies and sell the assets. This practice, common in the USA but rare in Europe or Asia, is called asset-stripping. It shows that stock markets are not always efficient, and that companies can sometimes be undervalued or underpriced: the price of their shares on the stock market can be too low. Some people argue that asset-stripping is a good way of using capital more efficiently; others argue that it is an unfortunate activity that destroys companies and jobs.