let me explain this extremely difficult to understand concept to you.
Lets assume that there is a holding company with 25 companies that can be combined into 5 business units. Lets say that 4 of the business units contribute $10 million in profits, and 1 of the business units, because it is ingaged in a long term project that will not reap profits for 3 years, loses 10 million due to the investment needed in that project. That gives the entire company $30 million in profits. Lets assume it trades at a 15 multiple. that gives the company a $450 million market capitalization. With me so far? Good.
Now, assume that the company breaks itself up into 5 separate companies. you now have 4 companies trading at a 15 multiple to their $10 million in earnings, which is $600 million, and 1 company that trades at some other figure. Lets say with a 5 million market cap, for a total of $605 million... get it? Good.
