Carve-Out

AAA

DEFINITION of 'Carve-Out'

The partial divestiture of a business unit. A company undertaking a carve-out is not selling a business unit outright, and may instead sell an equity stake in that business or spin the business off on its own while retaining an equity stake itself. A carve-out allows a company to capitalize on a business unit that may not be part of its core operations.

INVESTOPEDIA EXPLAINS 'Carve-Out'

A company may use a carve-out strategy rather than a total divestiture for several reasons, and regulators take this into account when approving or disapproving such restructuring. Sometimes a business unit is deeply integrated, making it hard for the company to sell the unit off completely while keeping it solvent. Those looking at investing in the carve-out must consider what would happen if the original company completely cut ties, and what prompted the carve-out in the first place.

In an equity carve-out, a business sells shares in a business unit. The ultimate goal of the company may be to fully divest its interests, but this may not be for several years. The equity carve-out allows the company to receive cash for the shares it sells now. This type of carve-out may be used if the company does not believe that a single buyer for the entire business is available, or if the company wants to maintain some control over the business unit.

Another carve-out option is the spinoff. In this strategy, the company divests a business unit by making that unit its own stand-alone company. Rather than sell shares in the business unit publicly, current investors are given shares in the new company. The business unit spun off is now an independent company with its own shareholders, though the original parent company may still own an equity stake.

RELATED TERMS
  1. Discontinued Operations

    A segment of a company's business that has been sold, disposed ...
  2. Split-Up

    A corporate action in which a single company splits into two ...
  3. Split-Off

    A means of reorganizing an existing corporate structure in which ...
  4. Parent Company

    A company that controls other companies by owning an influential ...
  5. Spinoff

    The creation of an independent company through the sale or distribution ...
  6. Scrip

    1. A written document that acknowledges a debt. 2. A temporary ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  2. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  3. Investing

    Additional Paid-In Capital

    Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional ...
  4. Trading Strategies

    General Electric: Good News/Bad News

    General Electric is generous to its shareholders, but that's not the only factor to consider.
  5. Investing

    Top 10 Largest Global IPOs Of All Time

    We have compiled a list of the top 10 largest IPOs of all time. The results may surprise you.
  6. Investing Basics

    How Does Alibaba Make Money? A Simple Guide

    Alibaba broke IPO headlines--but making news and making money are two different things.
  7. Stock Analysis

    A United Technologies Product: Always Closeby

    If you flown in an airplane, shopped for food or sat comfortably in a hot climate, you've probably used a United Technologies product.
  8. Investing News

    5 IPOs That Broke The Markets In 2014

    In 2014, stock markets traded at record levels and the US IPO market enjoyed activity not seen since the 2000 tech bubble. Here is a snapshot of some of the year’s most successful IPOs.
  9. Investing Basics

    Alibaba IPO: Why List In the U.S.?

    For companies like Alibaba, a U.S. listing can provide some benefits that they can't find at the exchanges nearer to home.
  10. Investing News

    IPO Stinkers: The Biggest IPO FAILS of 2014

    Despite a booming market, some IPOs crashed and burned. Sure, going public brings a flood of capital, but it can also expose a company to unpredictable market forces.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center