There are many pros and cons to the various divestiture options. Firstly, looking at the private sale, the pros include the ability to sell a 100% stake. It can be very speedy. Shareholders can monetize their shareholding and you can monetize their control premium, if selling to a strategic buyer rather than a financial buyer. It can be confidential and it raises cash for the seller, which they can use for other things. The cons include the fact that a financial buyer needs strong cash flows. It may be that your subsidiary doesn't particularly have strong cash flows. Also, there's often no value for synergies because a financial buyer doesn't have a business to link to it. There aren't any synergies to be earned. There's also less confidentiality if it's a broad auction. The consideration can be a mix of cash and shares, and there can be tax issues. If you've got cash proceeds and you've may gain on sale, you may have to pay tax in an IPO. This broadens the shareholder base and allows the group to participate in future growth and maybe future value of the subsidiary. It allows you to establish the market value of the subsidiary without selling it all off, and this links to the next point that you're making a sale of a minority stake only you can sell down the rest later. Once you've established the market value and decided whether it's something you want to pursue. It could provide acquisition currency, number one, if you've got cash proceeds you can spend it, but number two, it can be in a currency which you may want to use. So for instance, if you are a British company but you are now listing your subsidiary in America, you get American dollars, which you can then spend. Lastly, it's a secondary share sale, it raises cash. The cons include the IPO discounts, try and sell all those shares to try and attract new shareholders you often have to sell those shares at a discount to the market value. It's often dependent on the attractiveness of the business. The size of the offering may be limited, and there's the cost of listing and there are continuing obligations here. Lots of admin, lots of time and effort needs to be put into it. Lastly, there are tax issues again, due to that gain on sale from the cash proceeds.

Looking at the spinoff, shareholders in the group receive separately listed shares in a subsidiary. That means those shareholders can now decide whether to hold onto their group shares or whether to hold onto their subsidiary shares, and they can sell them as they wish. Shareholders get to retain the control premium. This means that that value is still in tact for them and it can be monetized maybe at a later date when the subsidiary is sold. There's the possibility of leveraging up the subsidiary pre-deal. This means that the group can push debt down into the subsidiary and pays the dividend up to the group. As it's a spin-off, there's the potential for it to be a tax-free transaction because there's no cash proceeds. The cons include the fact that a valuation of the subsidiary needs to be established, but because there's no external buyer involved can be difficult to work out what that market value actually is.

There's the cost of listing because we've got those new shares and there can be a lack of cashflow to the parents if the debt pushed down is not possible. A split-off is very similar to a spin-off, so we move onto a carve out, followed by a spin-off. A carve out means you do an IPO first and this establishes the market value of the subsidiary first before then doing the full spin-off. That initial IPO can also provide cash to the parents. The cons include the potential tax issues. Again, you've got those cash proceeds coming in and there may be a lack of an IPO market. Trying to establish that market value and get cash proceeds in may be tricky.