Minority interest - market cap or book value

CFA Level I Corporate Finance
#1

Hi,
I am looking at a case where a company owns c. 60% of its subsidiary (whis is also a listed company itself). When calculating the Enterprise Value of the parent company, would I …

  • add the market capitalisation (i.e. market value) or the book value of the minority interest?
  • if I add the market cap of the subsidiary, would I add 100% of it or just 40% (which the parent does not own)?

Logically, I would calculate as follows: EV parent = Mcap parent + 40% of Mcap subsidiary

Thanks in advance

#2

The idea here is not to double count. So, if parent only holds 60% of sub, then it only gets 60% of the cashflows, even though sub is fully consolidated.
So you have:
EV = EqV + NDebt + MInt.
You can view that 40% as some debt the parent shareholders have against the minority shareholders.

Now, here sub is publicly listed, but that doesnt change the logic. You’d value sub at market value, since you’re looking for the market value of the parent.

Anorher way to look at it is to say that the information contained in the parent share price includes the share price of the sub, so you need to usz market values to be consistent.