ACCA Strategic Professional · Advanced Financial Management · Business re-organisation
Dalton plc, a listed group, transfers its Rowan division into a new company and distributes the new company's shares to Dalton's existing shareholders in proportion to their holdings. Dalton receives no cash. Which type of reorganisation is this?
This is a spin-off, also called a demerger. The division moves into a new company whose shares are given to the parent's existing shareholders in proportion to their holdings, with no cash received. A carve-out would instead sell shares to outside investors and raise cash.
- ASpin-off (demerger)Correct
- BEquity carve-out
- CSell-off to a third party
- DManagement buy-out
Explanation
In a spin-off the parent distributes shares in a new subsidiary to its own shareholders pro rata, so the same owners hold both companies and no cash comes in. An equity carve-out sells shares to new outside investors and raises cash. A sell-off transfers the division to another buyer.
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