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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

Meridian Textiles Ltd runs a loss-making synthetic yarn division and a profitable garments division. The board decides to sell the yarn division as a going concern to an unrelated buyer, Kaveri Fibres Ltd, for cash, and to use the proceeds to repay debt. Which description fits this transaction best?

This is a divestiture, specifically a sell-off of an undertaking. The company sells the yarn division to an unrelated buyer and receives cash itself. In a demerger, the shareholders would instead receive shares of the resulting company, so that option does not fit.

  1. ADivestiture by way of sale of an undertaking for cashCorrect
  2. BDemerger with shares issued to Meridian's shareholders
  3. CBuyback of shares from the open market
  4. DReverse merger of the yarn division into the garments division

Explanation

The division is sold to an outside buyer for cash, and the seller company receives the consideration. That is a divestiture (sell-off). In a demerger, shares of the resulting company go to the shareholders of the demerged company, which does not happen here.

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