Chapter: Chapter 28: Divestitures
1. Which of the following is the best name for a distribution of all shares in a subsidiary to
existing shareholders of the parent company?
a) Carve-out.
b) Spin-off.
c) Split-off.
d) Tracking stock.
2. Which of the following would be classified as a private divestiture?
I. Split-off.
II. Carve-out.
III. Trade sale.
IV. Joint venture.
a) I and II only.
b) I, II, and IV only.
c) II and III only.
d) III and IV only.
3. Which of the following is the best definition of a trade sale?
a) Sale of part or all of a business to a strategic or financial investor.
b) A trade of a subsidiary’s assets for other physical assets to avoid taxes.
c) Sale of all shares of a subsidiary to new shareholders in the stock market.
d) A combination of part or all of a business with other industry players, other companies in the
value chain, or venture capitalists.
4. Which of the following are true concerning private transactions?
I. Most are done to financial buyers.
II. They tend to capture value more quickly.
III. Fiscal implications may affect the decision.
IV. They are usually a better choice if identifiable buyers exist.
a) I and II only.
b) I, II, and III only.
c) II, III, and IV only.
d) I, II, III, and IV.
5. With respect to their effect on divestures, which of the following is most accurate concerning
legal, contractual, and regulatory barriers?
a) They are one of the reasons that divestitures are rarer than acquisitions.
b) They are typically not large enough to distort the value-creation potential of divestitures.
c) They are generally a problem only for larger divestitures, and smaller divestures are not
affected by them.
d) They are an established hurdle that most companies address before the process to
determine the viability of the divestiture.
6. Acquisitions occur in waves, but divestitures occur randomly.
7. Executives seem to shy away from divestitures and usually delay them too long.
8. The liquidity of the assets of the divested company does not play a role in the amount of
value created.
9. Whether or not a spin-off is part of a focus-improving strategy can be important with respect
to how much value it creates.
10. According to data on more than 200 carve-outs announced before 1998, carve-out entities
do not last. The majority of the subsidiaries were spun off further, acquired, or merged with
other players.
11. Explain the reasons that a parent company may not want to give up control over a business
unit it wants to divest and the preferred method of divestment in this case.