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When a parent company sells a subsidiary or a coherent group of assets with a stated reason to provide a near-term infusion of cash, which method for selling the assets is most likely?

Spin-offs involve the issuance of shares in the new firm, and do not generate cash for the parent company. Hence, this can be ruled out if the intent is an infusion of cash. An equity carve-out will generate cash for the parent when the public offering is completed, but this can take time. A divestiture is typically a sale to another firm for cash, and is likely to be completed much more quickly than a carve-out. Therefore, if the intent is to provide a near-term infusion of cash, a divestiture is most likely.

The usual distinction between a divestiture and a spin-off is that a divestiture:

A)	is a simple distribution of shares in the subsidiary to the parent’s existing shareholders, whereas a spin-off involves an exchange of the parent’s shares for shares of the subsidiary.

B)	involves the distribution of shares in the subsidiary to the parent’s existing shareholders, whereas a spin-off is the sale of a subsidiary for cash.

C)	is the sale of a subsidiary for cash, whereas a spin-off involves the distribution of shares in the subsidiary to the parent’s existing shareholders.

Both actions involve the sale of a subsidiary or some coherent subset of the firm’s assets. In the case of a divestiture, the sale is usually for cash. In the case of a spin-off it involves the distribution of the new firm’s shares to the parent’s existing shareholders.

Which of the following statements regarding equity carve-outs is least accurate?

A)	Shares of the subsidiary are usually issued in a public offering.

B)	The parent company usually maintains a controlling interest in the new firm.

C)	The management team and operations are separate from the parent company.

In an equity carve-out, the intent is to establish a new, independent firm. Therefore, the parent company usually does not maintain a controlling interest in the new firm.

A)	shares in the new firm are distributed on a pro-rata basis to existing shareholders, but are sold via a public offering in a split-off.

B)	the parent’s existing shareholders receive shares in the new firm on a pro-rata basis, whereas they must surrender their shares in the parent to obtain shares of the new firm in a split-off.

C)	the parent’s existing shareholders must surrender their shares in the parent to obtain shares of the new firm, whereas they receive shares in the new firm on a pro-rata basis in a split-off.

In a spin-off, shares of the new firm are distributed to the parent’s existing shareholders on a pro-rata basis. In a split-off, the parent’s existing shareholders must surrender their shares in the parent to obtain shares in the new firm.