I don’t want to offend any of our nonagenarian readers, but I saw a photo of Rupert Murdoch yesterday and wow is he getting old. He is still Chairman and CEO of News Corp though, which makes me really happy because it means that we are always getting new material for this newsletter’s favorite TV show, Succession.

The lowdown

• 💥 Adani Group targeted by activist short sellers Hindenburg Research as the group seeks capital.

• 🔋 Tesla’s former CFO backs up Musk’s claim that funding was secured.

• 🚬 Juul in talks with three tobacco giants about a potential sale.

Flex your finance muscle

Conglomerate discount

Two big stories about conglomerates in the news this week, so we are looking at what is known as the conglomerate discount. 

The phenomenon occurs when markets assign a lower worth to a diversified group of businesses than the total value of its individual components. The discount is generally attributed to the inefficiencies and negative externalities associated with conglomerate structures. These negative externalities can include increased costs, lower returns, and reduced transparency as compared to companies with more focused business models. Additionally, conglomerates may be less appealing to investors because of their complexity and the difficulty in understanding their financials.

This week, News Corp abandoned its earlier plan to reunite with Fox Corp. News’ biggest investor T Rowe Price had expressed concerns that the deal, which would have valued News Corp at $23 billion, was underpriced. 

And T Rowe Price might have had a point. The New York Times trades at a PE ratio of roughly 34. Applying this same ratio to the more profitable Dow Jones (owned by News), we get a $10 billion valuation — which appears to be higher than what is being ascribed to assets under the deal. Continuing this same process of applying comparable company PE ratios to News' standalone assets comes out at a much larger valuation than $23 billion ($).

See our featured story for an example of where a conglomerate may be trading at a premium.

Featured Stories

Adani accused of corporate con

Activist short selling firm Hindenburg Research has released an inflammatory report titled 'Adani Group: How the world's 3rd richest man is pulling the largest con in corporate history' — and that's a pretty big call because there have been some big ones.

The Adani Group is a conglomerate owned by India's richest person, Gautam Adani. Its assets span sectors including energy, resources, logistics, agribusiness and real estate.

The report alleges, among other things, that the group has inflated its profits and assets through shady accounting practices and a lack of financial controls not properly scrutinized by its auditors. It ends with 88 questions that Hindenburg would like Adani to answer. The report also discloses that Hindenburg is holding a short position in Adani Group companies. Companies linked to the Adani Group took a $10.8 billion dollar hit after the report was released, with shares falling an average of 5%. 

(On a side note, isn’t it a little morbid to name your firm after a tragedy that killed 35 people? I won’t even mention my other ideas!)

The content we're consuming today

• FT on YouTube: India and the business of women’s cricket.

• Gamecraft: The Forever Games (Ep 4).

• The Verge: Tesla made more money in 2022 than ever before, but its future still looks rocky.

Off-balance sheet items

• Everything Everywhere All at Once has been nominated for 11 Oscars. Here is the trailer. (Trigger warning for accountants: there is a big, disorderly pile of receipts at the beginning of the clip.)

The bottom line