What is a Carve-Out?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 October 2019
  • Copyright Protected:
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Google recognizes a unit of measure called a smoot, which is equal to 5'7", the height of MIT alum Oliver Smoot.  more...

November 15 ,  1867 :  The world's first stock ticker debuted in New York City.  more...

Sometimes called a partial spinoff, a carve-out involves the partial sale of interest in a subsidiary of a larger company, while still maintaining a controlling interest in the subsidiary. Generally, the larger entity is referred to as a parent company, while the subsidiary is identified as a child company. When a carve-out occurs, the parent company continues to function according to the usual pattern, while some slight changes are usually involved in the operation of the child company.

The process of selling off a minority share in the child company is often accomplished with the issue of an IPO. The IPO, or initial public offering, provides the means for a fixed number of the shares of the child company to be offered for public sale. By controlling the sale of the shares, it is possible to ensure that controlling interest in the company is retained. This means the child company will still have the benefit of the resources of the parent, although the carve-out often does create a reorganization of the executive and management branches for the smaller company.


Once the initial carve-out is completed, it is not unusual for the parent company to incrementally continue to release shares of the child company for sale. Over an extended period of time, the control of the parent over the child will lessen. At the same time, the claim of the child company on the resources of the parent will also decrease. Eventually, controlling interest in the child will transfer to other hands, and the former parent company will often choose to escalate the sale of any remaining interest.

A carve-out may occur as a means of raising necessary funds to enhance the general operation in some manner. At other times, the carve-out may be utilized as a means of financing a new product launch for the parent company. Often, the strategy is part of a long-term plan that will eventually change some important aspect of the way the parent company operates. However, that plan is generally not shared with the general public, and often will take a number of years to be fully implemented.


You might also Like


Discuss this Article

Post your comments

Post Anonymously


forgot password?