No, I think you are naive if you think that a parent company would run a small subsidiary at a loss on its books, when it can charge the larger company a fee that would make the small one profitable, allowing the big company to take the hit because it can easily absorb it because it has so many other sources of income, plus that might lend itself to more tax breaks, and allow them to say to other providers, hey, we charge ourselves this much, why would I charge you less. That's logical. I don't know why you think the big company would force the small fry in the company to take a hit when there are so many more reasons to have the big company take a hit.
Well, Wall Street, SEC, bankers, IRS, regulators GAAP, IFRS, will all say otherwise for very good reason because a controlled subsidiary is no different from the parent at all.
Related companies all file tax returns and prepare financial statements for consolidated groups. Even if a subsidiary elects not to be taxed as part of the consolidated group it nevertheless absorbs it's corporate parent (and all other subs) tax attributes so whether it is on one form or multiple the net tax will be the same.
Stock market price is set by the market (that is, willing buyers and sellers). In the end they could largely care less about how the pots are filled inside the company. Now there could be motivation (if a parent wants to sell a sub instead) to make one sub look good and shift profits over there by changing it's intercompany revenue structure. But true buyers will see through that because they research their purchase. This is exactly what a business appraiser, economist, or valuation engineer will do - determine the true arm's length value w/o any compulsion of insider dealing.
Because in the end it is a complete WASH to the parent company.
I don't know why you think the big company would force the small fry in the company to take a hit when there are so many more reasons to have the big company take a hit.
Whether it costs $4 or not is irrelevant. I charge myself $4 and I take in revenue of $4 and I just allocated costs all over the place with NO CHANGE WHATSOEVER in consolidated Net Income.
At the same time Time Warner (or whomever, change the names to someone else!) will get and retain existing customers ensuring additional revenue streams from customers that might otherwise leave if they had a choice! So overall the company makes MORE money!
Edited by WebTraveler, 04 November 2012 - 01:25 PM.