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Topic_24_E1 - Topic 24 Exercise 1 Spin-Offs and Carve-Outs...

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Topic 24, Exercise 1 Spin-Offs and Carve-Outs Firms are often active in acquiring or merging with other firms. Another area that has been growing in recent years is the opposite activity of spinning a portion of the firm out at a separate corporation. Like the decision to merge or acquire firms, the decision to split the firm up and create separate entities is motivated by maximizing the value of the parts. In fact, spin-offs often occur after a merger or an acquisition when the synergies that were expected do not occur and the value of the separate units is larger than the combined firm. A recent article, Spin Cycles, describes spin-offs and some potential benefits to this transaction. Once you have read the article, answer the following questions: 1. What is the difference between a spin-off and a carve-out? The only difference between a spin-out and a carve-out relates to how the stock for the new company is distributed. With a spin-off, the shares are distributed to the existing
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