Equity Carve Out
Equity Carve Out
Subsidiary B
Shareholders implicitly own 100% of equity of subsidiary B through their Company A shares.
Equity carve out
(partial IPO)
Portion of
Sub B equity X % of sub B equity sold
Not sold To market for cash
In IPO
X % of
Company
B shares
Subsidiary B
Shareholders own shares of combined company. Own the equity in subsidiary implicitly.
Spin offs (2)
New company B
Shareholders
receive
Shares of
company B
Old shareholders still own shares of company A, which now only represent ownership of
A without B.
Equity Carve-out Spin-off
Subsidiary B
Company C
Divestitures (2)
Old Sub B
Company C
Features of divestitures
• Selling corporation typically receives
consideration for the assets sold
– cash
– securities
– other assets
• Divestitures are typically taxable
events for selling corporation (new
basis for purchaser)
• Comparison to divestitures
– Similar in that cash is received
– Differences
• Divestiture is usually to another company
• Control over assets sold is relinquished by
parent-seller and trading of subsidiary is
not initiated
Advantages of Equity Carve-
out
• boost a company's valuation
• provide powerful incentives to the
people who work in the unit
• help management of the parent focus on
core operations
• better information about the business
unit
• Opportunity for financing the growth of
the subsidiaries
Cont….
• It brings new capital to the parent company.
KRAFT FOOD
PHILLIP MORRES
HISTORY
• PHILIP MORRIS-TOBACCO SHOP IN
1847 IN LONDON
• COMPANY STARTED IN 1902
• MARLBORO BRAND CIGARETTES
• MARLBORO BECAME NO. 1 SELLER IN
1972
HISTORY OF KRAFT FOODS