spin-off

USA

A mechanism for separating out a division or line of business from its parent company. Spin-offs are typically used to increase stockholder value by increasing the value of the business being spun-off or removing a business that no longer fits within the parent structure. In a traditional spin-off, the parent company forms a subsidiary corporation (if the line of business or division is not already a subsidiary) and transfers the relevant assets to that subsidiary. The parent company then dividends shares of that subsidiary to the stockholders of the parent company. Alternative structures include:

• Split-off: an exchange offer in which the stockholders of the parent company exchange their stock in the parent for stock in the new entity.

• Split-up: the parent distributes the stock of its subsidiaries to its stockholders and then the parent dissolves. Following the split-up, the stockholders of the former parent own the stock of the different subsidiaries.

• Partial spin-off: a spin-off where the parent company retains a minority interest in the subsidiary.

• Subsidiary Offerings: the parent makes a public offering of its subsidiary's stock.

• Tracking stocks: the parent creates an additional class of shares intended to track the performance of a subsidiary. The stock can then be distributed in whichever way the parent chooses (for example, to the public or to its existing stockholders).

The type of structure depends on many factors including: securities regulations, corporate dividend laws and commercial, industry and tax considerations.

For more information on spin-offs, see Practice Note, Spin-offs: Overview (www.practicallaw.com/2-503-1986) and Standard Document, Spin-off Transaction Checklist (www.practicallaw.com/4-503-0354).