This tends to depress the stock initially. Index funds are forced to sell the spin indiscriminately if the company is not included in a particular index. This type of selling can create excellent opportunities for the astute investor to uncover good businesses at favorable prices. Often, after the spin, freed from a large corporate parent, pent-up entrepreneurial forces are unleashed. Often, an IPO in which the parent company retains a majority interest in the new company, may be a prelude to a spin-off of the remaining interests to existing shareholders.
Companies utilize a partial spin-off strategy for a number of reasons.
Sometimes a corporation may need to raise capital. Selling off a portion of a division while still retaining control may be an attractive option for a company. At other times the motivation for pursuing a partial spin-off is to highlight a particular division's true value to the marketplace. Its value may be masked when buried among the parent company's other businesses. A separate stock price for the division enables investors to value the division independently.