ACCA Strategic Professional · Advanced Financial Management · Business re-organisation
Which is the most likely motive for a parent company to carry out a sell-off of a subsidiary rather than a spin-off?
A sell-off is chiefly used to raise cash from an outside buyer, which can repay debt or fund core investment. A spin-off brings in no cash and leaves shareholder ownership unchanged, so it does not serve that purpose.
- ATo raise cash to repay debt or fund core business investmentCorrect
- BTo keep shareholders' ownership of the business unchanged
- CTo avoid any change in the parent's balance sheet
- DTo create a separately quoted company without receiving funds
Explanation
A sell-off generates cash proceeds from an outside buyer, which can reduce gearing or fund investment in core activities. A spin-off yields no cash and leaves shareholders owning both companies.
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