Question on holding company valuation

I’m trying to calculate (using dcf) the equity value per share of a holding company. The holding company is not listed, and has no operating business of its own, but holds three companies A, B, and C. They hold 100% of A and B shares, both of which are listed. Company C is not listed and is incurring losses currently, and the holding company ownss 60% of it. I would consolidate (proportionate) company C’s operating income onto that of company A and B. So my final result would be the sum of equity value of A, B, and C. Divide that by # of shares, that would give us equity value of the holding company. Equity (market) values of A and B are calculated from market capitalization. If i deduct total debt from the Firm value © and add that result to equity value of A and B, I get a negative figure. This was pretty much expected since the holding company is a distressed company…and my client is seeking to sell it. Sorry for the long intro… My question is…i’m not so confident with the negative equity value. I’m wondering if i made a mistake in subtracting total debt. What do i do with the debt the holding company has? The tricky part is that the holding company is just a shell with no operations and has a whole lot of debt outstanding. (the holding company’s Financial Statement is not consolidated). It seems the holding company’s equity value is “0,” only that I want to be careful since company A and B have ok market caps. ps. < MV Equity (A) + MV Equity (B) + (Sum FCF - Debt ©) > / number of shares.

I don’t see why you think that is a problem. If you borrow $100 to buy something that turns out to be worth $90, you have a negative equity value.

I think negative equity value is a big problem personally.

chrismaths Wrote: ------------------------------------------------------- > I think negative equity value is a big problem > personally. Ask GM… over $30 billion negative NW