Question

Shelley alternately considers an equity carve-out of a portion of...

Shelley alternately considers an equity carve-out of a portion of Cellzyme. Assume Interco initially owns 20M Cellzyme shares. She is advised by her investment bankers that a sale of 20% stake of Cellzyme for $10M would be well-received by investors. She is considering a primary offering, whereby Cellzyme would issue new shares. After the carve-out, Interco would be left owning 80% of Cellzyme. Assume the proceeds from the primary offering stay in Cellzyme.

2) Assume the carve-out allows the market to realize the true value of Interco's operating divisions. At what price would Cellzyme shares trade? Interco shares?

3) Under what circumstances would Shelley choose the carve-out over the spin-off?