Spin Off

Spin-Off

A situation in which a company offers stock in one of its wholly-owned subsidiaries or dependent divisions such that subsidiary or division becomes an independent company. The parent company may or may not maintain a portion of ownership in the newly spun-off company. A company may conduct a spin-off for any number of reasons. For example, it may wish to divest itself of one industry so it can expand into another. It may also simply wish to profit from the sale of the subsidiary. A spin off should not be confused with a split off.

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spin off

To distribute stock of a subsidiary to stockholders of the parent company. For example, directors of Union Pacific Corporation voted to spin off the firm's natural resource operations by distributing to Union Pacific stockholders shares of Union Pacific Resources.

Case Study In October 2001 consumer products giant Procter & Gamble announced an agreement to sell two of its major brands, Jif peanut butter and Crisco cooking oils, to jelly and jam maker J.M. Smucker Company. Acquisition of the two brands doubled the sales of Ohio-based Smucker, whose stock price closed up 20% on the announcement. The acquisition made Smucker a market leader in three major consumer categories. In an unusual move, the sale was accomplished by first spinning off Jif and Crisco assets to P&G shareholders, who then exchanged the assets with Smucker in a stock swap. The agreement called for one Smucker share to be exchanged for each 50 shares held by a P&G stockholder. Thus, the owner of 1,000 shares of Procter & Gamble received 20 Smucker shares in the exchange. An acquisition for stock rather than cash is tax-exempt until shares are eventually sold, an advantage to Procter & Gamble shareholders. Procter & Gamble would have been required to pay taxes on any gain had Smucker paid P&G for the purchase in cash rather than stock. Procter & Gamble decided to spin off Jif and Crisco to its stockholders rather than conduct the exchange directly with Smucker because P&G had no interest in holding Smucker stock. P&G shareholders owned slightly over 50% of Smucker following the share exchange.