A parent company creates a new business, keeps ownership Show What is a Spin-Off?A corporate spin-off is an operational strategy used by a company to create a new business subsidiary from its parent company. A spin-off occurs when a parent corporation separates part of its business operations into a second publicly traded entity and distributes shares of the new entity to its current shareholders. The new entity takes assets, employees, or existing product lines and technologies from the parent in exchange for a predetermined amount of cash. The spun entity may take on debt to provide a distribution to the parent in exchange for those assets or loss of cash flow.  Reasons for a Spin-offA spin-off may be a method for the parent to reduce agency costs and create tax shields or to enter a new industry while retaining a close relationship with the spun-off company. It is a way of reorganizing a company’s administrative structure in order to improve its profitability. When a company plans to consolidate or streamline its workflow, it can spin off a less productive division to form a new independent company. In other words, a company creates a new business entity out of its existing divisions, subsidiaries, or sub-units. The new individual company is expected to be more profitable and worth more alone than it would be as a part of the larger business entity. When a spin-off occurs, the shareholders of the parent corporation are not required to surrender any of their parent corporation stock in exchange for the subsidiary’s stock. What is a Split-off?A corporate split-off is the process whereby a parent corporation organizes a subsidiary corporation to which it transfers part of its assets in exchange for all of the subsidiary’s capital stock, which is subsequently transferred to the shareholders of the parent corporation in exchange for a portion of their parent stock. In other words, it is a transfer of corporate assets to a subsidiary involving the surrender of a part of the stock owned by the corporation’s shareholders in exchange for controlling stock of the subsidiary. A split-off is a way of restructuring the capital structure of a company. Shareholders of a split-off are given the option to relinquish their shares of stock in the parent company in order to receive shares of the subsidiary company. The split-off is also a tax-efficient way for the parent company to redeem its shares of stock. Spin-off vs. Split-offA split-off differs from a spin-off in that the shareholders in a split-off must relinquish their shares of stock in the parent corporation in order to receive shares of the subsidiary corporation, whereas the shareholders in a spin-off do not need to do so. Additional ResourcesCFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)® certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:
On the contrary, Split-off is a process in which the holding company’s shareholders are allotted shares in the subsidiary, that is being split-off in exchange for the shares in its holding company. The company adopts the divestiture in order to focus on its key areas or to fulfil urgent cash requirement, or due to the large size of the business, it is difficult to handle, the unit is not generating good revenue. Check out the differences between spin-off and split-off, in the article presented to you. Content: Spin-off Vs Split-off
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Definition of Spin-offA spin-off can be defined as a type of divestiture in which the part of a business is dissociated and created as a separate firm, by issuing new shares. This form of corporate divestiture is also known by the name spin-out or starburst. The shares are distributed as a dividend to the existing shareholder in the proportion of their holdings, with the aim of compensating the loss of equity in the initial stocks. In this way, ownership is not changed, in the sense that the same stockholders will own the company and that too in the same proportion. Further, the shareholder’s have the choice to retain these shares with themselves, or they can also sell these shares in the market. Companies go for a spin-off to manage the division that has good potential, especially for the long term. In the spin-off, the parent concern transfers the assets, intellectual property, i.e. copyright, royalty, trademark, etc., and manpower, to the newly affiliated firm. Definition of Split-offThe term ‘split-off’ is used to mean a method of corporate restructuring, in which the shares of a company’s subsidiary or unit are transferred to the shareholders, in return for the equity of the parent concern. Hence, it is similar to stock repurchase, wherein the parent company buys back its own shares. Prior to the split-off, the split-off entity is a division or subsidiary of the parent concern, which after split-off becomes a separate legal entity owned by some of the shareholders of the parent organization and ownership of the parent concern will be in the hands of the remaining shareholders, who do not surrender their shares for the shares in the split-off. It is a strategy to defend the subsidiary company, against the hostile takeovers, as well as it benefits both the holding company, its subsidiary, which goes for split-off. The differences between spin-off and split-off are given in detail in the points given below:
ConclusionCompanies that wish to make their operations more efficient and effective, usually sell their unprofitable units or unrelated subsidiary, to concentrate on its core and more profitable operations. And to do so, spin-off and split-off is the best option for the corporates. What is also called as spinWhen a company creates a new independent company by selling or distributing new shares of its existing business, this is called a spinoff. A spinoff is a type of divestiture. A company creates a spinoff expecting that it will be worth more as an independent entity. A spinoff is also known as a spinout or starburst.
What is an example of a spinSpin-offs occur when the equity owners of the parent company receive equity stakes in the newly spun off company. For example, when Agilent Technologies was spun off from Hewlett-Packard in 1999, the stock holders of HP received Agilent stock.
What is spinA spin-off distributes shares of the new subsidiary to existing shareholders. A split-off offers shares in the new subsidiary to shareholders but they have to choose between the subsidiary and the parent company.
What does spinIn a "spin-off," a parent company distributes shares of a subsidiary to the parent company's shareholders so that the subsidiary becomes a separate, independent company. The shares are usually distributed on a pro rata basis.
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When a corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business it is called?
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