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Equity carve-out

A parent sells a minority stake in a subsidiary through an IPO while keeping control, often as a first step toward a full separation.

A carve-out raises cash and puts a public price on a unit, unlike a spin-off, which distributes shares and raises nothing. The parent typically retains 80% or more so that a later tax-free spin-off of the remainder is possible.

The float after a carve-out is tiny, which produces exaggerated moves and sometimes an implied value for the parent's stake that exceeds the parent's whole market-cap.

Example: a parent sells 15% of a unit at a $20B valuation, raising $3.0B. Its remaining 85% is implied to be worth $17B. If the parent's own market cap is $15B, the market is valuing everything else at less than nothing.

Related: spin-off, split-off, float

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