equity carve-out


Also found in: Acronyms.

Equity Carve Out

The act or process of a company making an IPO on one of its subsidies without fully spinning off. During an equity carve-out, the parent company becomes majority shareholder and only offers a minority share to the market. This gives the subsidiary a degree of autonomy (such as its own board of directors) while still retaining access to resources at the parent company. Most of the time, an equity carve-out ultimately results in the parent company fully spinning off the subsidy. It is also called a partial spin off.

equity carve-out

The initial sale of common stock by a corporation of one of its business units. The initial public offering generally involves less than the entire amount of the stock in the unit so the parent company retains an equity stake in the subsidiary. An equity carve-out is sometimes followed by a distribution of the remaining shares to the parent's stockholders. Also called carve-out, split-off IPO.
Case Study Phillip Morris's 2001 equity carve-out of a portion of its ownership in subsidiary Kraft Foods resulted in what to that time was the second largest initial public offering in U.S. history. The $8.7 billion raised from the issue of 280 million shares was second only to the prior year's $10.6 billion initial public offering of AT&T Wireless tracking stock by AT&T. Demand for the Kraft issue was strong enough to allow the managers, Credit Suisse First Boston and Salomon Smith Barney, to increase the issue price to $31 per share from an earlier estimate of $27 to $30. Kraft, owner of well-known products including Maxwell House coffee, Post cereals, and Planters peanuts, was wholly owned by Phillip Morris prior to the IPO. Subsequent to the carve-out, Phillip Morris held slightly less than 50% of Kraft's class A common stock but controlled nearly all of the firm's voting shares. Proceeds from the stock issue were to be used to reduce Kraft's immense debt, which was incurred when the company in late 2000 purchased Nabisco Holdings for nearly $20 billion.
References in periodicals archive ?
For about 83% of these observations, the complete divestiture takes place within two years after the equity carve-out.
We also control for the size of the subsidiary relative to the size of the pre-carve-out assets and for whether the proceeds from the equity carve-out are paid out to investors.
Our objective is to explore the IPO price-setting process, specifically, how underwriters treat public information throughout the pricing period, with a comprehensive data set of equity carve-outs (ECOs) to gain new insights on the efficiency of IPO pricing.
Harden, 2001, "Corporate Restructurings: A Comparison of Equity Carve-Outs and Spin-Offs," Journal of Business Finance and Accounting 28, 503-529.
Unlike a spin-off or equity carve-out, a tracking stock doesn't create a new legal entity.
In an equity carve-out, a parent firm takes a subsidiary public through an IPO of shares in the subsidiary.
Any company undertaking an equity carve-out should realize that the act itself is no guarantee of success.
Corporations must also realize that an equity carve-out will not suit everyone.
For the final sample, we search the Dow Jones News Retrieval and individual firm prospectuses to obtain: the announcement dates of the equity carve-out, the price per share of the IPO, the number of shares offered, the type of offering (primary, secondary, or joint), the use of the proceeds, the percentage of shares retained by the parent firm, and details of executive stock option plans.
Of the 37 divestitures with publicly traded parents, nine were created through a spin-off and 28 through an equity carve-out.
An equity carve-out is the sale of some portion of a wholly-owned subsidiary's common stock to public investors.
An equity carve-out is defined as an event in which the parent sells equity claims in a subsidiary through a public cash offering, but retains a majority holding in the carved out subsidiary for financial reporting, tax, or control considerations.