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Is it possible for company A to own 20% (for example) of company B's shares, whilst company B owns, say, 20% of company A's shares as well?

Edit: If So, would it be possible then for more then 50%, that is A owning B controlling stake while B also owing A controlling stake as well?

Ksec
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    Yes they can, but the question to ask is why would they and what purpose does it serve them ?? – DumbCoder Apr 17 '13 at 12:20
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    @DumbCoder Maybe not on the order of 20%, but I can easily see this happening if A wants to invest in B, and B happens to want to invest in A; in a wider market with large portfolios I could see this happening inevitably somewhere. Or A could do this to get on B's board of directors, perhaps, although that doesn't necessarily explain why B would also buy into A. – John Bensin Apr 17 '13 at 12:56
  • @JohnBensin What you mention is a hypothetical scenario. How much it happens in real life, that is my query. Locking up so much equity in a different company rather than investing in their own business needs a very good reason. – DumbCoder Apr 17 '13 at 13:01
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    @DumbCoder It happens in some places more than others. See my answer. – Chris W. Rea Apr 17 '13 at 13:17
  • @DumbCoder Sure, 20% of another company, but in smaller amounts? Absolutely. – John Bensin Apr 17 '13 at 13:32
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    Imagine that it wasn't allowed. Then company A could stop hostile takeovers by B by purchasing just a single share of B's stock. Besides, how would you figure out these cycles anyway? Length 2 is doable, but what if A owns B, B owns C and C owns A? – MSalters Aug 21 '14 at 22:12
  • more importantly, what happens if each company starts buying shares of the other until each company owns 100% of the other company? –  Jan 26 '16 at 17:04
  • @Michael Quite a while ago, but: I don't think they could do so. In order to achieve this, both would need to have so much cash that they couldn't do their business any longer. – glglgl Sep 29 '20 at 13:10

4 Answers4

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Yes, this can and does certainly happen.

When two companies each own stock in each other, it's called a cross holding.

I learned about cross holdings in reference to Japanese companies (see Wikipedia - Keiretsu) but the phenomenon is certainly not exclusive to that jurisdiction. Here are a few additional references:

Chris W. Rea
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    Sorry updated the questions, but would it be possible to own more then 50%? – Ksec Apr 26 '13 at 09:54
  • Possible, yes, unless the SEC objects. Likely, not very. At that point they usually jest merge... again assuming they are allowed to do so. – keshlam Jul 28 '15 at 18:52
  • How would you compute the book value of the two companies in a case like this? Part of the first company's book value is dependent on the book value of the second company, which in turn is partly dependent on the value of the first company... infinite loop! –  Mar 31 '17 at 23:07
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    @Michael: How do you solve any system of equations where each variable appears in all the equations? – Ben Voigt Sep 29 '20 at 15:10
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Absolutely. In fact, all stock purchases of more than 5% of a company's stock must be reported to the SEC, so assuming A and B are publicly traded companies in the US, the purchase would likely be a matter of public record.

There are probably special cases where this could cause problems, however; any case where A's purchase of B's stock (or vice versa) runs afoul of regulation would be one such case. For example, if company A wants to own a controlling interest in company B and appoint members of its board of directors and both companies were in the same heavily-concentrated market, regulators may frown on the potential for decreased competition. Such regulations may apply to any purchase of a controlling interest in a company, though.

John Bensin
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I was looking at NAT and NAO, NAT owns 20% of NAO. They trade opposite each other on the price of oil, low is good for NAT, bad for NAO. In bad times the other company's stock would probably rise, so they could trim excess shares to keep a stable monetary holding. This would create cash in bad times, in good times they could buy more, creating a floor as well for the other.

Jerry
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  • Welcome to [Money.SE]. Please check out the Help Center for some tips on writing the best possible answers. In this case, for example, your answer could benefit by providing additional information above and beyond what's already present in the answers from two years ago. – dg99 Jul 28 '15 at 20:17
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Yes, this happens a lot. And in many cases companies don't even know this is happening.

Collateralized Debt Obligations frequently contain pieces of the same financial products, where it is not obvious what the underlying asset is.

It gets complicated to explain, but I can make an analogy to a portfolio of stocks you might create. Your portfolio contains companies and those companies also own some of the other companies in your same portfolio. The value of all the companies in your portfolio are very interrelated even though you thought you made diversified investments, under the idea that they can't all do poorly at the exact same time. Except they can, if the value of the company's shares are solely based on the value of other company's shares, but nobody noticed that none of them have an actual robust operations.

This was a key factor of the financial disaster around 2008, but this problem was solved with the addition of additional disclaimers that all investors agree to, so they know what they are buying

CQM
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