a. Firm A has multiple subsidiaries. Today, Firm A sold 10% of one subsidiary to the public and received $10M from the sale. After the spinoff, the market cap of Firm A is $50M. What is the implied market valuation of the entire subsidiary? What is the stub value? Explain how you obtain your answers.

b. How do you set up your arbitrage strategy? Suppose firm A announced that it will spin off the subsidiary after 2 months. Explain the two major difficulties your arbitrage strategy will face.

Need answer for B only.

Answer rating: 100% (QA)

Ans Setting up an arbitrage strategy in the context of a spinoff announcement involves exploiting pr... View the full answer