What Is a Spin-Off?

A parent company creates a spin-off division as an independent entity. A spin-off is initiated when the company 澳洲幸运5官方开奖结果体彩网:expects the spin-off may be 🔯worth more independently than as part of the parent company. A spin-off is also known as a spinout or starburst. A spinoff is created when a parent company distributes shares in a subsidiary or business division to the parent company shareholders. It is a type of 澳洲幸运5官方开奖结果体彩网:divestiture.

How a Spin-Off Is Created

A 澳洲幸运5官方开奖结果体彩网:parent company will spin off part of its business if it expects it will be lucrative. The spin-off will have a separate management structure and a new name, but retain the same assets, intellectual property, and human resources. The 𓆏parent company may continue to provide financial and technological support.

A corporation creates a spin-off by distributing 100% of its ownership interest in the targeted business unit as shares of stock to existing shareholders. It can also offer its existing shareholders a discount to 澳洲幸运💧5官方开奖𒐪结果体彩网:exchange their shares in the parent company for shares of the spin-off.

For example, an investor could exchange $100 of the parent’s stock for $110 of the spin-off’s stock. Spin-offs may increase 澳洲幸运5官方开奖结果体彩网:shareholder returns because newly independent companies can better focus on their s🦄pecific products or services.

Benefits

• A spin-off may enable the business unit to focus its resources and better manage areas with greater long-term potential.
• Businesses can streamline operations and spin off less productive or unrelated subsidiary businesses.
• When a portion of a business has different strategic priorities than the parent company, a spin-off may provide value independently to the company and its shareholders.

Risks

• A company's and the spin-off's share price can be more volatile and spin-offs may experience high selling activity initially.
• Parent company shareholders may not want the shares of the spin-off they received because the spin-off may not fit their investment criteria.
• The spin-off's share price may dip in the short term because of this selling activity, even if the spin-off’s long-term prospects are positive.
  

Examples

In 2022, according to data compiled by EY and Goldman Sachs, over thirty corporate separations, or spin-offs, occurred globally across multiple industries, representing 17% of all announced separations since 2012.

Historical examples of spin-offs include Smith & Wesson Inc. from American Outdoor Brands Corp. in 2019, and the separation of 澳洲幸运5官方开奖结果体彩网:PayPal Inc. from its parent company, 澳洲幸运5官方开奖结果体彩网:eBay Inc. in 2015. In early 2023, General Electric spun off its healthcare division, GE HealthCare Technologies, and Jefferies Financial Group spun off its holdings of Vitesse.

The Bottom Line

A spin-off, also known as a spinout or starburst creates a new company from an existing company. It's a type of divestiture and is only done if a parent company expects the new company will be worth more independently.