US CMA Part 2 · Chapter 4 · Question 13 of 15
A conglomerate creates a new independent company from one of its divisions and distributes the new company's shares to its existing shareholders pro rata, without receiving cash. This is called a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Spin-off
Explanation
In a spin-off, shares of the new company are distributed to the parent's shareholders with no cash raised. In an equity carve-out, the parent sells a minority stake in the subsidiary to the public for cash. A leveraged buyout is an acquisition financed mainly with debt, and a horizontal merger combines competitors in the same line of business.
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