Aswath Damodaran Stern School of Business, （Aswath Damodaran Stern School of Business),）.pdf

1 The Octopus: Valuing Multi-business, Multi-national companies Aswath Damodaran Stern School of Business, New York University adamodar@ November 2009 2 The Octopus: Valuing Multi-business, Multi-national companies As both investors and firms globalize, it should come as no surprise that valuing these firms brings special challenges. In this paper, we look at firms that not only operate in many countries but also in diverse businesses. The different risk, growth and cash flow profiles of the cash flow streams generated by these firms requires us to reconsider how we estimate discount rates and approach valuation. We consider how best to value these firms as consolidated entities and contrast these valuations with an alternative, where we value each part of the firm separately and use the sum of the parts to value the businesses. 3 If globalization has been a key theme of the last decade, it should come as no surprise that the companies that we are valuing reflect that globalization. In this paper , we focus on a subset of companies that are diversified not only across countries, but also across businesses. These multi-business firms, spread geographically, are difficult to value because they represent multiple businesses, bundled and sold as a single package. In this paper , we examine these firms and consider the best ways of reflecting the differences in risk, cash flow and growth characteristics across the different businesses/regions that a company may operate in. Multinationals T