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

Nadir plc is considering an equity carve-out of 30% of its subsidiary Nadir Pay through an IPO. Which statement about the carve-out is correct?

In a carve-out the parent sells a minority stake, here 30%, to new investors by IPO. It raises cash and keeps control through its remaining 70% holding. Distributing shares free to existing shareholders would be a spin-off instead.

  1. ANadir plc retains control and raises cash from new outside shareholdersCorrect
  2. BNadir plc's existing shareholders receive the new shares free in proportion to holdings
  3. CNadir plc loses control of Nadir Pay because shares are sold to the public
  4. DNadir plc receives no cash because the proceeds go to the subsidiary's former owners

Explanation

In an equity carve-out a minority stake is sold to outside investors, typically by IPO, so the parent raises cash while retaining control with 70%. Free distribution to existing shareholders describes a spin-off.

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