Hi all. Can anyone refresh me on how to tackle valuation of a firm with cross holdings. Let us say for example Nissan owns 20% of Renault and Renault owns 20% of Nissan.
This would mean that 80% of the shares of each company are available to be purchased, yet combined they must account for the full value of both firms (else who owns the missing 20% +20%?).
Say each generates $100 of FCFE and the discount rate is 10% with no growth, combined thus they generate $200 and have a valuation of $2000. How do you split this between the two firms, there is a bit of a circular logic as for example the 20% Nissan owns in Renault also includes a claim on Nissan since Renault also owns a part of Nissan.