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IAI Actuarial Core Principles · Business Finance · Corporate growth, restructuring and divestment

Which statement best distinguishes an equity carve-out from a spin-off?

In a carve-out the parent sells a minority shareholding in a subsidiary to new outside investors and receives cash, usually keeping control. In a spin-off the subsidiary's shares are distributed to the parent's existing shareholders without payment, so no cash is raised.

  1. AIn a carve-out the parent sells a minority stake in the subsidiary to new investors for cash, whereas in a spin-off shares go to existing shareholders without paymentCorrect
  2. BIn a carve-out the subsidiary is wound up, whereas in a spin-off it continues
  3. CA carve-out always results in the parent losing all control, whereas a spin-off does not
  4. DA carve-out is a distribution to existing shareholders, whereas a spin-off raises cash from new investors
  5. A carve-out is only possible for unlisted parents

Explanation

A carve-out (partial IPO) raises cash for the parent from outside investors and the parent usually keeps control. A spin-off distributes shares to existing holders with no cash raised. The other options reverse or misstate these features.

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