Spin-off

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Spin-off

A company can create an independent company from an existing part of the company by selling or distributing new shares in the so-called 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.

Spin-off.

In a spin-off, a company sets up one of its existing subsidiaries or divisions as a separate company.

Shareholders of the parent company receive stock in the new company based on an evaluation established for the new entity. In addition, they continue to hold stock in the parent company.

The motives for spin-offs vary. A company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up a company to capitalize on investor interest.

In other cases, a corporation may face regulatory hurdles in expanding its business and spin off a unit to be in compliance. Sometimes, a group of employees will assume control of the new entity through a buyout, an employee stock ownership plan (ESOP), or as the result of negotiation.

References in periodicals archive ?
Regan said the spinoff would remove some volatility from the bottom line in General Electric's GE Capital unit and would prevent GE Capital's earnings from becoming more than 45% to 50% of the parent company's earnings.
The parent company's stock also outperforms (as well it should according to valuation theory), and the greatest response comes from spinoffs of large and profitable operations, the kind done by ITT (with ITT Industries and ITT Hartford), General Motors (with EDS), Sprint (with 360 Communications), 3M (with Imation), and other major players.
When the time comes to divide pension liabilities and plan assets, a process called a spinoff, the basis for determining the amount of assets can be the most bitterly contested section of the sale agreement.