Posted in Finance, Accounting and Economics Terms, Total Reads: 393
It is a way of restructuring the capital structure of a company. The parent company offers the investors shares in a subsidiary in return for shares in the parent company. Using split off the parent company tries to differentiate itself from its subsidiaries. This is done by passing on the shares of subsidiary, other business division or a new affiliate. Thus a business group which is not able to find descent offers from other firms, or from other private players tend to spin off its business.
In majority of cases, the parent company or organization will offer support by doing one or more of the following activities:
• Invest equity in the new firm,
• Be the first customer of the spin off to create cash flow
• Provide incubation space (desk, Internet access, chairs, phones, etc.)
• Provide finance, technology or legal services
All these aforementioned activities from the parent company are done with the explicit objective of helping the spin off grow.
1. Foster’s group, was ready to sell off its wine business, however it did not receive any good offer. Thus it opted to spin off the wine division, which was named Treasury Wine Estates.
2. Guidant was spun off by Eli Lilly and Company in 1994, it was formed from Lilly's Medical Devices & Diagnostics Division.