While break-ups are bad news in the romance department, shareholders generally see them as a win. Corporate spinoffs not only generate an uptick in stock price, but can also make both companies more profitable.
There are approximately 50 spinoffs each year in the United States. Expedia made headlines several years ago with its spinoff of Trip Advisor. Currently, the business world is buzzing over when and if EBay, Inc. will spinoff its extremely successful PayPal unit. In a traditional spinoff, a corporation distributes 100 percent of its ownership interest in an existing division or business unit as a stock dividend to existing shareholders. Alternatively, shares can also be sold to the public via an initial public offering (IPO) transaction known as a “carve out.” In either case, the end result is a new and distinct corporate entity.
In many cases, corporations choose to break off a subsidiary or business division in order to streamline their operations.
Likely candidates include unrelated or underperforming units that may perform better on their own, while also allowing the parent company to focus on its core products or new offerings.
As with any corporate divestiture, there are both benefits and disadvantages. Spinoffs are beneficial because they result in so-called “pure play” companies that are attractive to investors because of their narrow focus on one particular industry segment or business strategy. Spinoffs also allow each company to pursue individual capital structures, operation plans, and growth strategies that are tailored to its business needs. They also do not generate tax liability, while proceeds from a sale are subject to capital gains taxes.
Of course, there are downsides. While share prices generally stabilize or even perform better, both the parent and the spinoff are likely to experience volatility in the short term. In addition, spinoffs can be extremely long and complex transactions, particularly in cases where the unit to be spun off is deeply interconnected with the parent company. As with any potential divestiture, careful planning and consultation with a team of experienced professionals is key to success.
Don’t Cash a “Paid in Full” Check Without Understanding the Legal Implications
Cashing a check marked “paid in full” can be a risky endeavor, particularly if you don’t fully understanding the legal implications. If you are owed more than the amount of the check you accept and deposit, you may waive your right to collect the full disputed amount. That is why you should consider either rejecting […]
Changes to Qualified Small Business Stock Will Benefit Startup Founders and Investors
The One Big Beautiful Bill Act of 2025 (OBBBA) significantly impacts federal taxes, credits, and deductions. A key change relating to Qualified Small Business Stock (QSBS) allows greater tax-free gains for investments in startups and other qualifying small businesses. Company founders and other investors should understand how the enhanced tax strategy works or risk missing […]
Corporate Consolidation and Antitrust Issues in Mergers
Corporate consolidation involves two or more businesses merging to become a single larger entity. The result is often a stronger and more competitive company that can better navigate today’s competitive marketplace. What Is Corporate Consolidation? Corporate consolidation closely resembles a basic merger transaction. The primary difference is that a consolidation creates an entirely new business […]
Business law plays a critical role in nearly every aspect of running a successful enterprise, from negotiating a commercial lease to drafting employee policies to fulfilling corporate disclosure obligations. Understanding what is business law and your legal obligations can help your business run smoothly and build productive relationships with clients, business partners, regulators, and others. […]
Corporate Transactions: Best Practices for Successful Deals
Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]
How to Conduct a Fair and Legal Employee Termination in 2025
Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
