What are Subsidiaries? How is knowing this important?
Knowing the corporation and associated subsidiaries of any venture can not only be important but vital when it comes to decision making.
What is a ‘Subsidiary’
A subsidiary is a company with voting stock that is more than 50% controlled by another company, usually referred to as the parent company or the holding company. A subsidiary is partly or completely owned by the parent company, which holds a controlling interest in the subsidiary company. In cases where a parent company owns a foreign subsidiary, the subsidiary must follow the laws of the country where it is incorporated and operates, and the parent company carries the foreign subsidiary’s financials on its consolidated financial statements.
BREAKING DOWN ‘Subsidiary’
“Subsidiary” is an adjective that describes when something or someone serves to assist or supplement another thing or another person. In a business setting, a subsidiary becomes part of a parent company to provide the parent with specific synergies, such as increased tax benefits, diversified risk, or assets in the form of earnings, equipment or property. For these purposes, liabilities, taxation and regulations treat subsidiaries as distinct legal entities.
The purchase of interest in a subsidiary differs from a merger in that the parent corporation can acquire the controlling interest with a smaller investment. Additionally, stockholder approval is not required in the formation of a subsidiary as it would be in the event of a merger. Warren Buffett’s Berkshire Hathaway Inc., for example, has a long and diverse list of subsidiaries, including Clayton Homes, the Pampered Chef, GEICO Auto Insurance and Helzberg Diamonds.
How a Subsidiary Operates
Like Berkshire Hathaway, Alphabet Inc. has many subsidiaries. These separate business entities all perform unique operations that add value to Alphabet through diversification, revenue, earnings, and research and development (R&D).
For example, Sidewalk Labs, a small startup that is a subsidiary of Alphabet, seeks to modernize public transit in the United States. The company has developed a public transportation management system called Flow, which aggregates millions of data points from smartphones, cars and Wi-Fi hotspots to analyze and predict where traffic and commuters are most congregated. The system can redirect public transportation resources, such as buses, to these congested areas to keep the public transit system moving efficiently.
As of June 28, 2016, the Flow platform is running in a wide-scale test in Columbus, Ohio. For Alphabet, Sidewalk Labs provides it with a business unit that develops technology that can one day help the entire company. Since one of Alphabet’s largest products is Google Maps, subsidiaries such as Sidewalk Labs can strengthen the company’s overall business operations.
Wholly Owned Subsidiaries
A wholly owned subsidiary is a company whose common stock is 100% owned by another company, the parent company. Whereas a company can become a wholly owned subsidiary through an acquisition by the parent company or having been spun off from the parent company, a regular subsidiary is 51 to 99% owned by the parent company. When lower costs and risks are desirable or when it is not possible to obtain complete or majority control, the parent company might introduce an affiliate, associate or associate company in which it would own a minority stake.
BREAKING DOWN ‘Wholly Owned Subsidiary’
Because the parent company owns all the shares of a wholly owned subsidiary, there are no minority shareholders. The subsidiary operates with the permission of the parent company, which may or may not have direct input into the subsidiary’s operations and management. For example, a wholly owned subsidiary may be located in a country different from that of the parent company. The subsidiary most likely has its own senior management structure, products and clients. Having a wholly owned subsidiary may help the parent company maintain operations in diverse geographic areas and markets or separate industries. These factors help hedge against changes in the market or geopolitical and trade practices as well as declines in industry sectors.
A parent company is a company that controls other, smaller businesses by owning an influential amount of voting stock or control. Parent companies are typically larger firms that exhibit control over one or more small subsidiaries in either the same industry or complementary industries. Parent companies can be either hands-on or hands-off with subsidiaries, depending on the amount of managerial control given to subsidiary managers.
Breakdown of ‘Parent Company’
A parent company is a larger corporation that has significant ownership over a subsidiary or group of subsidiaries. These partially or wholly-owned smaller companies are controlled by the parent, to varying degrees; however, all parent companies, for the most part, own more than 50% of a subsidiary’s voting stock.
Parent companies can either be conglomerates or holding companies. A conglomerate, such as General Electric, is a huge company with its own business venture that also owns other companies with their own business ventures. A holding company, on the other hand, is put in place specifically to own a group of subsidiaries and does not conduct its own business operations. Holding companies normally form to realize tax advantages among a connected group of smaller companies.
Companies can become parent companies by many different means. The two most common ways are through the acquisitions of smaller companies and the spinoff or creation of subsidiaries. For the purposes of accounting, parent companies report results of subsidiaries on audited statements when subsidiaries fall under the same corporate identity.
These are basic parts to a much larger whole. Now let’s use Prince’s album “3121” as an example of Subsidiaries and Parent Groups.
3121 released on March 21, 2006 is the thirty-first studio Album by Prince released on released by NPG Records and distributed, under a “1-Album Deal”, by Universal Music. Universal Music is a subsidiary of Universal Music Group.
Universal Music Group, Inc. is an American-French global music corporation that is a subsidiary of the Paris-based French media conglomerate Vivendi.
“The title of the album was believed to be a reference to the address of Prince’s rented Los Angeles mansion. A lawsuit filed against Prince by the landlord (NBA player Carlos Boozer) indicates an entirely different address (1235 Sierra Alta Way). However, Prince has repeatedly referred to the property as “3121”; indeed, the lawsuit alleges he painted 3121 on the exterior of the property, and the album’s liner notes indicate that it was “recorded at Paisley Park Studios and 3121.”-Quote Source
What is Vivendi?
Vivendi SA (formerly Vivendi Universal SA) is a French multinational mass media conglomerate headquartered in Paris, France The company has activities in television, film, video games, telecommunications, tickets, video hosting service, and music.
Vivendi is a company primarily focused on digital entertainment. It owns the French TV channel and movie producer Canal + Group, Many other Companies such as Vivendi Village, Dailymotion, Gameloft and Telecom Italia, GE, Comcast, NBC Universal, as well as music world leader Universal Music Group.
What is Universal Music Group?
Universal Music Group or UMG was originally formed as Decca Records in 1934. It has been renamed MCA Records in 1989, MCA Records in 1996, and PolyGram in 1998.
CEO: Lucian Grainge
CFO: Boyd Muir
UMG is an American-French global music corporation that is a subsidiary of the Paris-based French media conglomerate Vivendi. UMG’s global corporate headquarters are in Santa Monica, California.
“With the 2004 acquisition of Universal Studios by General Electric and merging with GE’s NBC, Universal Music Group was cast under separate management from the eponymous film studio. This is the second time a music company has done so, the first being the separation of Time Warner and Warner Music Group. In February 2006, the label became 100% owned by French media conglomerate Vivendi when Vivendi purchased the last 20% from Matsushita, the group’s sole owner from 1990 to 1995 and co-owner from 1995 to 2006. On June 25, 2007, Vivendi completed its €1.63 billion ($2.4 billion) purchase of BMG Music Publishing, after receiving European Union regulatory approval.”-Quote Source
Universal Music Group has Many Subsidiaries of it’s own. Here are just a Few:
- Universal Music Enterprises
- Interscope Records
- Def Jam Recordings
- Republic Records
- Island Records
- Polydor Records
- Universal Music Publishing Group
- Cash Money Records
- Mercury Records
- Universal Music Latin Entertainment
- Verve Records
- Fonovisa Records
- Deutsche Grammophon
- Aftermath Entertainment
- Virgin Records
- Universal Music Group Nashville
- EMI Records
- Shady Records
- Machete Records
- Interscope Geffen A&M Records
- Universal Music Spain, S.L.
- Disa Records
- Universal Music Canada
- Universal Music Australia
- MCA Music Inc.
- Blue Note Records
- Universal Music TV
- Show Dog-Universal Music
- Minos EMI
- Concord Bicycle Music
- Universal Music Argentina
- Capitol Music Group Sweden
- Eagle Rock Entertainment
- G-Unit Records
- Gold Typhoon
- Vertigo Records
- Gaiam Vivendi Entertainment
- Fontana Distribution
- Fontana Records
- El Cartel Records
- Roxy Records
- WY Records
- Imani Entertainment
- Vevo LLC
- Orfanato Music Group
- Universal Music Sweden
- BMLG Records
- Decca Label Group
- V2 Records
- Universal Music Indonesia
- Universal Music Strategic Marketing…..
Universal Music Group Also Owns a WIDE Variety of Artists AND Artists’ Labels (see list above and research for more) such as but not limited to:
- Taylor Swift
- Lady Gaga
- Kanye West
- Lil Wayne
- Mariah Carey
- Enrique Iglesias
- Jay Z
- Will Smith
- Lindsay Lohan
- Maroon 5
- Amy Winehouse
- Elton John
- Andrea Bocelli….
What is NPG Records?
NPG (New Power Generation) Records is a record Label that was owned by Prince and rumored to be ran by Trevor Guy. Trevor Guy also claimed to be Prince’s manager, however Prince did not believe in having “handlers”
“I ask 3rdEyeGirl’s guitarist, Donna Grantis, who has a half-shaved head and Hendrixian chops, about her influences. “Prince,” she says, flatly. Her husband, a pleasant rocker dude named Trevor Guy, came along with her and ended up working closely with Prince, serving some managerial functions. (Prince believes artists shouldn’t have managers: “You should be a grown man, be able to man-age yourself.”) Josh, Welton’s husband, an R&B-singer-turned-producer, also became part of the Paisley family, working on some of Prince’s final albums. They’ve all been living in a nearby hotel for a year and a half, spending at least six days a week in Paisley Park.”-Quote Source
NPG was founded to release Prince’s music after Paisley Park Records was shut down by Warner Bros Records in 1993. NPG Records never developed into a full label like Paisley Park did: instead, it exclusively released Prince’s albums or side-projects.
I am sure now you can take it from here so you desired 🙂
If you are still reading, I am sure you now can see the benefits of knowing Subsidiaries and parent companies. Do not take any information here as complete facts or full information on anything or any company. Your own research is needed for any specific information you seek on a subject, business, company or potential investment. You can go all the way to the top or the bottom. My suggestion of course would be to go all the way both ways. Information you overlook may be vital.
Now let’s assume we did stop here going down.
Well we would not find that Warner Bros is owned by Time Warner. You would not find what all else Warner Bros owns, who it affiliates with, and so forth.
Nor would you find all that Time Warner owns and controls like Home Box Office better known to you as HBO. Or Turner.
And stopping there would void you of the knowledge that Turner owns a plethora of news entertainment including CNN/U.S.., CNN International, CNN.com, HLN, TBS, TNT, Turner Classic Movies, truTV, Cartoon Network, Adult Swim and Turner Sports.
I think you now know what a Subsidiary is and how knowing this is important. 🙂
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