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.
Tariff Response Options for Small Businesses Facing Financial Distress
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Common Causes of Partnership Disputes and How to Resolve Them
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Businesses Are Facing Financial Headwinds—A Practical Guide
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
President Trump's Termination of Member Gwynne Wilcox
On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]
Breach of Contract Explained: Types and Consequences
Breach of contract disputes are the most common type of business litigation. Therefore, nearly all New York and New Jersey businesses will likely have to deal with a contract dispute at least once. Understanding when to file a breach of contract lawsuit and how long you have to sue for breach of contract is essential […]
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide
Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]
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!
