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

Which of the following is most likely to be a motivation for a company to undertake an equity carve-out of a subsidiary rather than a spin-off?

An equity carve-out floats part of a subsidiary's shares to outside investors, so the parent raises cash while usually keeping control. A spin-off raises no cash, and liquidation or management buy-outs are different methods of reorganisation.

  1. ATo raise new cash from outside investors while retaining a controlling stakeCorrect
  2. BTo give existing shareholders direct ownership of the subsidiary at no cost
  3. CTo liquidate the subsidiary and distribute assets
  4. DTo transfer the subsidiary to its management for deferred payment

Explanation

An equity carve-out involves a partial public flotation of the subsidiary's shares, raising cash for the parent while it typically keeps control. A spin-off raises no cash, a liquidation is a break-up, and deferred payment to management describes a buy-out structure.

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