In a carve-out, a firm:
A)distributes the stock of its new company to existing shareholders.
B)distributes the stock of its new company to outside investors.
C)purchases a company in a new industry and sells its shares to existing shareholders.
D)purchases a company in a new industry and sells its shares to outside investors.

Question

Quizplus · Accepted Answer

In a carve-out, a firm creates a new entity from a division or part of its existing business and distributes the stock of the new company to outside investors. This allows the parent company to raise capital and receive strategic benefits while also giving investors a chance to invest in a focused or specialized company. Option A is incorrect as the stock is not distributed to existing shareholders, but rather outside investors. Options C and D are also incorrect as they involve purchasing a company in a new industry, which is not a characteristic of a carve-out.

In a Carve-Out, a Firm