Here’s Why the Jardine Group of Companies Might Never Simplify Their Complex Ownership Structure

Earlier today, I wrote about the curious cross-holdings that the conglomerates Jardine Matheson Holdings Limited (SGX: J36) and Jardine Strategic Holdings Limited (SGX: J37) have in each other’s shares.

I also touched on how this complicated cross-ownership may have deterred investors from investing in them despite their great performance over the past decade (total returns of around 300% for both).

I then concluded that the family that controls the Jardines have the power to make things easier for investors by simplifying the ownership structure for the two companies. But, there’re reasons to believe that the Jardines would not be doing so.

The cross-holding structure makes it confusing for minority investors to know exactly what they own if for example, they had bought only shares of Jardine Strategic Holdings.

But, there is a strong advantage in doing so for the controlling family of the Jardine Group of companies – more specifically, it allows them to exert a stronger influence on all the other companies they hold stakes of without having to actually purchase large investments in them.

For instance, if I invest 51% in Company A that in turn owns 51% of an operating subsidiary called Company B, I only own 26% of Company B (51% multiplied by 51%).

However, since I own 51% of Company A, I actually have a controlling influence over the company. As Company A, in turn, has a controlling influence over Company B, this means that I get to exert control over B despite the fact that I effectively own only 26% of B.

Such dynamics can be very beneficial for the majority owner of Company A and it’s only logical to think that such advantages won’t be relinquished. So, what are minority investors (or potential minority investors) in the Jardines to do? Unfortunately, all we can do is either trust that the management (the majority owners) will treat us fairly or not invest in them at all.

As Warren Buffett once explained, there is no need for investors to invest in every company we come across. The important thing is to understand where you might have a knowledge-advantage and stay within that space. Some companies can really be “too hard to understand” and there is no shame in admitting that if the Jardines happen to fall into the category for you.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.