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 ?
Thompson (2010) validates the partial price adjustment for equity carve-outs.
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.
Any company undertaking an equity carve-out should realize that the act itself is no guarantee of success.
ECO = A dummy variable equal to one if the issue is an equity carve-out, zero otherwise;
Our primary test examines whether the change in operating performance from before to after the equity carve-out relates to the amount of ownership retained by the parent company.
In contrast to the above studies, Slovin, Sushka, and Ferraro (1995), using a sample of 36 equity carve-outs over 1980-1991, find that share prices of equity carve-out rival firms react negatively to carve-out announcements.
In the past decade, hundreds of corporations have used tracking stocks, equity carve-outs, and spin-offs for this purpose.
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.
We used the Securities Data Corporation database to examine all US domestic equity carve-outs from 1985 to July 1996 in which the parent retained at least 50 percent of the subsidiary shares and had annual revenues of at least $200 million.
As Schipper and Smith (1986) document, however, the benefits of an equity carve-out may be obtainable with only a "temporary" public market for the subsidiary shares.
The purpose of this paper is to explore the underlying motivations behind the corporate decision as to how to divest assets, either through a spin-off or an equity carve-out.