A spinoff is a form of divestiture where a parent corporation distributes shares of a subsidiary to the parent corporation’s shareholders. The shares of the newly spun-off company then trade in the market just like the parent’s shares.A company will spin off a unit to rid itself of an underperforming part of its business. Alternatively, if the core part of the business is underperforming, the company may spin off a new, up-and-coming area of its business to give the new subsidiary a better chance to flourish and reach its full value. In addition, the parent company now can focus on its core competencies. Usually a spinoff is accomplished by distributing the spinoff company’s shares as stock dividends to the parent company’s shareholders. Each shareholder receives his pro-rata portion of the spinoff company based on the shares he owns in the parent company. An alternative method is for the parent company to offer its shareholders the right to exchange some of their shares in the parent for shares in the spinoff company. The offer is made at a discount. For example, shareholders can exchange $100 worth of the parent company shares for $200 worth of the spinoff company shares. Shares in spinoff companies tend to have high levels of trading volatility. They often underperform in weak markets and outperform in strong markets. In addition, a large number of the parent shareholders may sell their spinoff company shares because they don’t fit with their investment strategy.