IAI Actuarial Core Principles · Business Finance · Corporate growth, restructuring and divestment
A listed Indian company transfers its entire fertiliser division into a new company and issues the new company's shares directly to the existing shareholders of the parent in proportion to their holdings. The parent receives no shares itself. Which description best fits this transaction?
This is a demerger or spin-off. The division is moved into a new company whose shares are issued straight to the parent's existing shareholders in proportion to their holdings, so they own both businesses and the parent receives no cash or shares.
- AA demerger (spin-off) in which shareholders hold shares in both companiesCorrect
- BA sell-off of the division to a third party for cash
- CA management buy-out of the division
- DAn equity carve-out with a partial public listing
- A reverse takeover of the parent by the division
Explanation
When a division is transferred to a new company whose shares go directly to the parent's shareholders in proportion to their holdings, it is a demerger or spin-off. No cash is received by the parent, so it is not a sell-off. No outside investors buy shares, so it is not a carve-out. Management does not acquire the division, so it is not an MBO.
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