# What Is a Corporate Spin-Off?

## What Is a Spin-Off?

A parent company creates a spin-off division as an independent entity. A spin-off is initiated when the company [expects the spin-off may be worth more](https://www.investopedia.com/ask/answers/050415/what-are-some-more-common-reasons-divestiture-occurs.asp) independently than as part of the parent company. A spin-off is also known as a [spinout](https://www.investopedia.com/terms/s/spin-out.asp) or starburst. A spinoff is created when a parent company distributes shares in a subsidiary or business division to the parent company shareholders. It is a type of [divestiture.](https://www.investopedia.com/terms/d/divestiture.asp)

### Key Takeaways

*   A spin-off is an independent company created when a parent company issues shares in an existing business or division to parent company shareholders.
*   A parent company may form a spin-off when it projects that a new, independent entity will be worth more than it was as part of the company.
*   A spin-off will have an independent management structure and a new name, but it may continue to receive financial and technological support from the parent company.

![Spinoff](https://www.investopedia.com/thmb/jpdEREz4cx2Zd1mY-HqdUc3QEeM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Spinoff-25b358d4a4704fccad845bbee039cf9c.jpg)

*— Mira Norian / Investopedia*

## How a Spin-Off Is Created

A [parent company](https://www.investopedia.com/terms/p/parentcompany.asp) will spin off part of its business if it expects it will be lucrative. The spin-off will have a separate management structure and a new name, but retain the same assets, intellectual property, and human resources. The parent company may continue to provide financial and technological support.

A corporation creates a spin-off by distributing 100% of its ownership interest in the targeted business unit as shares of stock to existing shareholders. It can also offer its existing shareholders a discount to [exchange their shares in the parent company](https://www.investopedia.com/ask/answers/032415/how-do-spinoffs-impact-investors-both-parent-and-subsidiary-companies.asp) for shares of the spin-off.

For example, an investor could exchange $100 of the parent’s [stock](https://www.investopedia.com/terms/s/stock.asp) for $110 of the spin-off’s stock. Spin-offs may increase [shareholder](https://www.investopedia.com/terms/s/shareholder.asp) returns because newly independent companies can better focus on their specific products or services.

> **Important**
>
> A company can relinquish 100% of its shares in the spin-off subsidiary, but many may separate only 80% to satisfy regulations and retain a 20% stake. 

## Benefits

*   A spin-off may enable the business unit to focus its resources and better manage areas with greater long-term potential.
*   Businesses can streamline operations and spin off less productive or unrelated [subsidiary businesses](https://www.investopedia.com/terms/s/subsidiary.asp).
*   When a portion of a business has different strategic priorities than the parent company, a spin-off may provide value independently to the company and its shareholders.

## Risks

*   A company's and the spin-off's share price can be more [volatile](https://www.investopedia.com/terms/v/volatility.asp) and spin-offs may experience high selling activity initially.
*   Parent company shareholders may not want the shares of the spin-off they received because the spin-off may not fit their investment criteria.
*   The spin-off's share price may dip in the short term because of this selling activity, even if the spin-off’s long-term prospects are positive.  
    

## Examples

In 2022, according to data compiled by EY and Goldman Sachs, over thirty corporate separations, or spin-offs, occurred globally across multiple industries, representing 17% of all announced separations since 2012.

Historical examples of spin-offs include Smith & Wesson Inc. from American Outdoor Brands Corp. in 2019, and the separation of [PayPal Inc.](https://www.investopedia.com/terms/p/paypal.asp) from its parent company, [eBay Inc.](https://www.investopedia.com/articles/markets/042815/how-ebay-makes-its-money-ebay.asp) in 2015. In early 2023, General Electric spun off its healthcare division, GE HealthCare Technologies, and Jefferies Financial Group spun off its holdings of Vitesse.

## What Does a Spin-Off Mean for Shareholders?

A parent company creates a corporate separation and distributes shares in a division or subsidiary to parent company shareholders to create a wholly separate business entity.

## How Do Spin-Offs Contribute to Corporate Strategy?

Separation within a corporation can force companies to transform by reprioritizing company strategies. For example, one company may focus on growth and another on profit margins.

## What Is the Difference Between a Spin-Off and a Split-Off?

A split-off is similar to a spin-off, where the parent company offers shares to existing shareholders. However, in a split-off, shareholders must choose between holding shares in the parent company or exchanging some or all of their holdings for shares in the new company.

## The Bottom Line

A spin-off, also known as a spinout or starburst creates a new company from an existing company. It's a type of divestiture and is only done if a parent company expects the new company will be worth more independently.  

> **Article Sources**
>
> 1.  FOREX. "[Demerger Meaning: The Differences Between Spin Offs, Split Offs and Carve-Out Demergers](https://www.forex.com/ie/news-and-analysis/what-is-a-demerger/)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Spin-Offs](https://www.investor.gov/introduction-investing/investing-basics/glossary/spin-offs)."
>     
> 3.  Goldman Sachs. "[Strategies for Successful Corporate Separations](https://www.goldmansachs.com/what-we-do/investment-banking/strategies-for-successful-corporate-separations)."
>     
> 4.  U.S. Securities and Exchange Commission. “[American Outdoor Brands Corporation Announces Intention to Separate into Two Independent Publicly Traded Companies](https://www.sec.gov/Archives/edgar/data/1092796/000119312519291031/d801271dex991.htm).”
>     
> 5.  eBay. “[eBay Inc. Board Approves Completion of eBay and PayPal Separation](https://www.ebayinc.com/stories/news/ebay-inc-board-approves-completion-of-ebay-and-paypal-separation/).”
>     
> 6.  General Electric. "[GE Completes Separation of GE HeathCare](https://www.ge.com/news/press-releases/ge-completes-separation-of-ge-healthcare)."
>     
> 7.  BusinessWire. "[Jefferies Completes Spin-Off of Vitesse](https://www.businesswire.com/news/home/20230116005574/en/Jefferies-Completes-Spin-Off-of-Vitesse)."