Spin-off (corporate)

A corporate spin-off, also known as a spin-out, or starburst, is a type of corporate action where a company "splits off" a section as a separate business.

Spin-offs are divisions of companies or organizations that then become independent businesses with assets, employees, intellectual property, technology, or existing products that are taken from the parent company. Shareholders of the parent company receive equivalent shares in the new company in order to compensate for the loss of equity in the original stocks. However, shareholders may then buy and sell stocks from either company independently; this potentially makes investment in the companies more attractive, as potential share purchasers can invest narrowly in the portion of the business they think will have the most growth.

In contrast, divestment can also sever one business from another, but the assets are sold off rather than retained under a renamed corporate entity.

Many times the management team of the new company are from the same parent organization. Often, a spin-off offers the opportunity for a division to be backed by the company but not be affected by the parent company's image or history, giving potential to take existing ideas that had been languishing in an old environment and help them grow in a new environment. Spin-offs also allow high-growth divisions, once separated from other low-growth divisions, to command higher valuation multiples.

In most cases, the parent company or organization offers support doing one or more of the following:

All the support from the parent company is provided with the explicit purpose of helping the spin-off grow.

The United States Securities and Exchange Commission's definition of "spin-off" is more precise. Spin-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.

A company not considered a spin-off in the SEC's definition (but considered by the SEC as a technology transfer or licensing of technology to the new company) may also be called a spin-off in common usage.

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