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ACCA Strategic Professional · Advanced Financial Management · Business re-organisation

Kestrel Group plans an equity carve-out of its subsidiary Finch. It will sell 30% of Finch's shares to the public at $5.00 per share. Finch will have 80 million shares in issue after the offer, and no new shares are issued. Kestrel will keep control. What cash does Kestrel receive, before costs and tax, and what is the main consequence for control?

Kestrel receives $120 million, being 24 million shares at $5, and retains a 70% holding so it keeps control. The $280 million figure is the value of the retained stake, and $400 million is the value of the whole company, so neither is cash received.

  1. A$120 million; Kestrel keeps control with a 70% holdingCorrect
  2. B$120 million; Kestrel loses control
  3. C$280 million; Kestrel keeps control with a 70% holding
  4. D$400 million; Kestrel keeps control with a 70% holding

Explanation

Shares sold = 30% x 80m = 24m. Cash = 24m x $5 = $120m. Kestrel retains 70%, so it still controls and consolidates Finch. $280m is the value of the retained 70% stake (56m x $5), and $400m is 100% of Finch's equity value.

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