Why buy stock of a company instead of the holding company who has more than 99% of the stocks

Question

I stumbled upon the fact that VW (DE0007664005) owns 99.55% of all shares of Audi (DE0006757008), i.e. only 0.45% of Audi are traded now. Why should someone buy shares of Audi?

You buy stock to:

• Get dividends
• Increase the value of the stock (hoping to sell it for more than you bought it)
• Getting involved in decisions
• Because you support the idea/uniqueness of the company

Get dividends: Audi's dividends are WAY lower than those of VW. In addition, Audi will spend many of his assets for “license” and other reasons to send directly to VW.
Increase the value of the stock: If Audi is doing good business most of its profit will go to VW – making only a small difference on the stock. If Audi is doing bad business VW maybe begins to sell some of its Audi stock – a nightmare, imagine all of a sudden the 99.55% of shares on the market will destroy the price of Audi's share. Also VW has more brands, i.e. is more diversified
Getting involved in decisions: Sure, you can vote, but in best case, you own 0.45% while one other shareholder has 99.55%
Unique company: A company who makes cars and is owned by a company who holds car makers is not that unique

Am I missing something? Why should someone even consider buying Audi shares instead of VW?

The same for Novo Nordisk and Novo A/S but not as extreme like here

Answer 1

In a situation like this, I presume you'd invest in the child company if you thought that the child company would increase in value at a higher rate than the parent. You'd invest in the parent company if you thought the parent company would perform well as a whole, but you did not want to assume the risk of an individual company underneath it.

Say the child company is worth 100 million, and the parent company is worth 500 million.

You've invested a sum of money in the child company.

The child company performs very well, and increases in value by, say, 20 million. As the parent company owns the child, we could say it also increases in value by roughly 20 million.

The difference is proportional - Your investment in the child sees a 20% gain in value, whereas your investment in the parent sees a 4% gain in total value, as in this example the parent company, which owns nearly 100% of the child company, is worth 5x more and thus proportionally sees 1/5 the increase in value, due to it being worth more as a whole.

Think of it similarly to a mutual fund or ETF that invests in many different stocks on the market. As the market does well, that mutual fund or ETF does well, too.

As the mutual fund is made up of many individual stocks, one stock performing very well, say at a 10-20% increase in value, does not raise the value of the ETF or mutual fund by 10-20%. The etf / mutual fund will perform slightly better (Assuming all other components remain equal for this example), but only proportionally to the fraction of it that's made up of the stock that's performing well.

Answer 2

Also VW has more brands, i.e. is more diversified

This isn't necessarily a good thing for investing. It makes the company less likely to go down, but it limits your portfolio. For example, say you think that Hyundai is a good alternative to Volkswagen (VW) but really like Audi. If you buy VW, you get some Audi but a lot more of the rest of VW. Then if you bought Hyundai, you'd be overrepresented in that segment of the market.

Audi may not be structured uniquely, but it is still the only company selling Audi brand cars. Perhaps someone thinks that those models will do well. That person may think that Audi will do exceptionally well in its niche.

Having many brands isn't necessarily great. General Motors had something like sixteen brands before declaring bankruptcy. It only has twelve now.

Now, it sounds like you feel the opposite about it. You don't particularly like Audi as a stock and like VW better. Your reasons sound perfectly reasonable (I know little about either company). It may even be that VW is the only one buying Audi stock, because everyone else has the same view as you.