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What is a 'Spinoff'

A spinoff is the creation of an independent company through the sale or distribution of new shares of an existing business or division of a parent company. A spinoff is a type of divestiture. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business.

A spin off is also known as a spinout or starbust.


When a corporation spins off a business unit that has its own management structure, it sets it up as an independent company under a renamed business entity. The company that initiates the spinoff is referred to as the parent company. A spinoff retains its assets, employees, and intellectual property from the parent company which gives it support in a number of ways, such as investing equity in the newly formed firm, and providing legal, technology, or financial services.

There are a number of reasons why a spinoff may occur. A spinoff may be conducted by a company so it can focus its resources and better manage the division that has better long-term potential. Businesses wishing to streamline their operations often sell less productive or unrelated subsidiary businesses as spinoffs. For example, a company might spin off one of its mature business units that is experiencing little or no growth so it can focus on a product or service with higher growth prospects. On the other hand, if a portion of the business is headed in a different direction and has different strategic priorities from the parent company, it may be spun off so it can unlock value as an independent operation. A company may also separate a business unit into its own entity if it has been looking for a buyer to acquire it for a while but was unsuccessful. For example, the offers to purchase the unit may be unattractive and the parent company might realize that it can provide more value to its shareholders by spinning off the business sector.

A corporation creates a spinoff by distributing 100% of its ownership interest in that business unit as a stock dividend to existing shareholders. It can also offer its existing shareholders a discount to exchange their shares in the parent company for shares of the spinoff. For example, an investor could exchange $100 of the parent’s stock for $110 of the spinoff’s stock. Spinoffs tend to increase returns for shareholders because the newly independent companies can better focus on their specific products or services. Both the parent and the spinoff tend to perform better as a result of the spinoff transaction, with the spinoff being the greater performer.

The downside of spinoffs is that their share prices can be more volatile and can tend to underperform in weak markets and outperform in strong markets. They can also experience high selling activity; shareholders of the parent may not want the shares of the spinoff they received because it may not fit their investment criteria. Share price may dip in the short term because of this selling activity, even if the spinoff’s long-term prospects are positive.

Spinoffs are a common occurrence; there are typically about 50 per year in the United States. You may be familiar with Expedia’s spinoff of TripAdvisor in 2011; United Online’s spinoff of FTD companies in 2013; Sears Holding Corporation’s spinoff of Sears Canada in 2012; eBay's spinoff of PayPal; to name just a few examples.

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  3. Parent Company

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  4. Minority IPO

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  1. Why are some spin-offs taxable and some are tax-free?

    Learn how spinoffs of subsidiaries from a parent company are typically done, and what determines whether a spinoff is taxable ... Read Answer >>
  2. How can a company execute a tax-free spin-off?

    Understand the two most commonly used methods, distribution and share exchange offer, that companies use to do a tax-free ... Read Answer >>
  3. How do spinoffs differ from initial public offerings (IPOs)?

    Learn about the differences between a spinoff and an initial public offering, and understand why spinoffs may be attractive ... Read Answer >>
  4. How do spinoffs impact investors in the both the parent and subsidiary companies?

    Learn about how spinoffs affect investors in both the parent company and the subsidiary and what strategies investors use ... Read Answer >>
  5. What are some common cash-debt strategies that occur during a spinoff?

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