What are the similarities and differences among sell-offs, spin-offs, and equity carve-outs? Is…

What are the similarities and differences among sell-offs, spin-offs, and equity carve-outs? Is one method better than the others? Why would a company want to divest itself of a business unit? Rumpole Bailey Company recently has become subject to a hostile takeover attempt. Management is considering either a leveraged buyout or a leveraged recapitalization. With the LBO, it would initially own 30 percent of the stock, but this would be diluted if mezzanine lenders were to exercise their warrants. These warrants, upon exercise, give holders 30 percent of the total shares. Management presently owns 400,000 shares of the 10 million shares outstanding. With a leveraged recap, it would receive 6 shares of “stub” stock for each old share owned, but no dividend, while public stockholders would receive one new share for each old share owned plus a large cash dividend. a. In the case of the LBO, after exercise of the warrants, what will be management's proportion of ownership of the company? b. If a leveraged recap were to occur, what would be management's proportion of ownership? c. Are there other factors to consider? What are they?

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