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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Financial Management

Case: Sanvi Pharma Ltd is demerging its API division into a new company, with shares issued proportionately to Sanvi's shareholders. Which description best fits this restructuring, as the case facts show?

This is a spin-off, or demerger. The division moves into a new company and its shares go to Sanvi's existing shareholders in proportion to their holdings, so ownership is unchanged and the parent receives no cash, unlike a sell-off or carve-out.

  1. ASpin-off, where shareholders receive shares in the new entity and ownership stays proportionateCorrect
  2. BSell-off, where the division is sold for cash to a third party
  3. CEquity carve-out, where shares of the subsidiary are sold to the public for cash
  4. DShare buyback of the parent company

Explanation

A spin-off or demerger creates a new entity whose shares are distributed pro rata to existing shareholders, with no cash inflow to the parent. Sell-off and carve-out bring cash, and buyback concerns parent shares.

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