Acorporate spin-off, also known as aspin-out,[1]starburst orhive-off,[2] is a type ofcorporate action where acompany "splits off" a section as a separatebusiness or creates a second incarnation, even if the first is still active.[3] It is distinct from a sell-off, where a company sells a section to another company or firm in exchange for cash or securities.
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 theparent company. Shareholders of the parent company receive equivalentshares in the new company to compensate for the loss of equity in the originalstocks. 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.[4]
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, themanagement team of the new company is 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'simage 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.[5]
In most cases, the parent company or organization offers support in one or more of the following:
Being the first customer of the spin-off that helps createcash flow
Providing incubation space (desk, chairs, phones,Internet access, etc.)
Providing legal, finance, or technology services
All the support from the parent company is provided with the explicit purpose of helping the spin-off grow. One of the most critical antecedents of corporate spin off or corporate entrepreneurship rests upon its CEO's ability to articulate a compelling vision can strengthen emotional bonds within the top management team, helping to foster corporate spin off or corporate entrepreneurship.[6]
TheUnited States Securities and Exchange Commission's (SEC) 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.[7] For example, whenAgilent Technologies was spun off fromHewlett-Packard (HP) in 1999, the stockholders 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.
A second definition of a spin-out is a firm formed when an employee or group of employees leaves an existing entity to establish an independent start-up. The prior employer can be a firm, a university, or another organization.[8] Spin-outs typically operate atarm's length from the previous organizations and have independent sources of financing, products, services, customers, and other assets. In some cases, the spin-out may license technology from the parent or supply the parent with products or services; conversely, they may become competitors. Such spin-outs are important sources oftechnological diffusion in high-tech industries.
Terms such as hive-up, hive down, or hive across are sometimes used for transferring a business to a parent company, asubsidiary company, or a fellow subsidiary.[9][10][11]
One of the main reasons for whatThe Economist has dubbed the 2011 "starburst revival" is that "companies seeking buyers for parts of their business are not getting good offers from other firms, or from private equity".[3] For example,Foster's Group, anAustralian beverage company, was prepared to sell its wine business. However, due to the lack of a decent offer, it decided to spin off the wine business, which is now calledTreasury Wine Estates.[12]
According toThe Economist, another driving force of the proliferation of spin-offs is what it calls the "conglomerate discount" — that "stockmarkets value adiversified group at less than the sum of its parts".[3]
Some examples of spin-offs (according to the SEC definition):
Guidant was spun off fromEli Lilly and Company in 1994, formed from Lilly's Medical Devices and Diagnostics Division.
Agilent Technologies spun off fromHewlett-Packard (HP) in 1999, formed from HP's former test-and-measurement equipment division. Later in 2014,Keysight was spun off from Agilent Technologies.
News Corporation's publishing operations (and its broadcasting operations in Australia) were spun off asNews Corp in 2013. The previous News Corporation's remaining media properties were retained under the name21st Century Fox. In turn, 21st Century Fox was acquired byThe Walt Disney Company in 2019, but its broadcast, news, and national sports assets were spun off to the newFox Corporation while Disney retained the film, television, and cable production units.
After being acquired bySega,Index Corporation's video game operations were re-branded asAtlus, the name of a predecessor company, while its contents and solution businesses were spun off as a new company using the Index Corporation name in 2013.
Viacom was spun off fromCBS in 1971, but was later re-merged in 2019 as ViacomCBS, nowParamount Global.
Fortive, Envista and Veralto were spun off fromDanaher in 2016, 2019 and 2023 respectively.
InSouth Korea, the then-CJ E&M (nowCJ ENM Entertainment Division) spun off its drama production and distribution division into a new subsidiary company calledStudio Dragon in May 2016.
Since 1997,Oxford University Innovation has helped create more than 70 spin-out companies,[13] and now, on average, every two months a new company is spun out of "academic research generated within and owned by the University of Oxford". Over £266 million in external investment has been raised by spin-out companies since 2000, and five are currently listed on theLondon Stock Exchange'sAlternative Investment Market.[14]
^New Zealand Master Tax Guide (2013 edition) – p. 771 1775470024 CCH New Zealand Ltd – 2013 "Essentially, a 'spinout' involves the transfer by a parent company of shares in a wholly owned subsidiary to the shareholders in the parent. To the extent that there is a common interest in the old and new holding companies, the spinout ..."
^Zahra, Shaker A. (1 December 1996). "Governance, Ownership, and Corporate Entrepreneurship: The Moderating Impact of Industry Technological Opportunities".Academy of Management Journal.39 (6):1713–1735.JSTOR257076.
EIRMA (2003) "Innovation Through Spinning In and Out",Research Technology Management, Vol. 46, 63–64.
René Rohrbeck; Mario Döhler; Heinrich Arnold (20 April 2009). "Creating growth with externalization of R&D results—the spin‐along approach".Global Business and Organizational Excellence.28 (4):44–51.doi:10.1002/JOE.20267.ISSN1932-2054.WikidataQ104832450.
