Question

The term "equity carve-out" refers to the situation where a firm's managers give themselves the right to purchase new stock at a price far below the going market price. Since this dilutes the value of the public stockholders, it "carves out" some of their value.

Select one:

a. True

b. False

Answer 1

THE STATEMENT IS : (b) FALSE.

we can understand this concept by taking an example

suppose there is a company A. it has one subsidiary B. so we call company A as parent and B as child.

company has controlling stake in company B, that is, all decision powers are with company A only.

Now by "equity carve out" company wants to capitalise on a business segment, which may not be the part of core operations.

capitalise means, company A will make company B independent in the sense it has its own board of directors and preparation of financial statements. it will also provide company B all help which is required.

but by issuing new shares, whatever money is received, will be used for developing company B, technically called, diversifying in some other businesses.

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