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Difference between spin-off and split-off

Difference between spin-off and split-off

There divestment or commonly referred to as divestment is the process of selling a part or division of the company to another company or the creation of a separate company. The divestment can take the form of spin-off, split-off, split-up, sell-off, equity-out, etc. Of these forms, the two commonly juxtaposed forms of disintegration are spin-off and split-off. The spin-off yes reports to the business division, which becomes an independent company, after separation from the parent company.

In reverse, Split-off a process in which the shareholders of the holding company are assigned to the subsidiary, which is split up in exchange for the shares of its holding company.

The company adopts the disposal to focus on its key areas or to meet urgent cash needs, or due to the large size of the business, which is difficult to manage, the unit is not generating good revenues. Discover the differences between spin-off and split-off, in the article presented to you.

Comparative chart

Basis for the comparison
Sense The spin-off implies a corporate action, in which a company divides a division and creates a new corporate entity, which is listed separately on the stock exchange and has an independent board of directors. The demerger refers to a company transfer process in which the subsidiary turnout of a company as a separate entity, with the independent listing of its capital stocks.
actions The shares of the subsidiary company are distributed to all shareholders. Holding shareholders are required to exchange their shares for shares in the subsidiary.
reasoning To create a separate identity for the new company. To create a distinction between the core business and the new one.

Definition of Spin-off

A spin-off can be defined as a type of divestiture in which the part of a dissociated company is created as a separate company, issuing new shares. This form of corporate transfer is also known as a spin-out or starburst.

The shares are distributed as a dividend to the current shareholder in the proportion of their holdings, with the aim of compensating for the loss of capital in the initial shares. In this way, the ownership is not changed, in the sense that the same shareholders will own the company and also in the same proportion. In addition, shareholders have the choice of keeping these shares with themselves, or they can also sell these shares on the market.

Companies are looking for a spin-off to manage the division that has good potential, especially in the long term. In the spin-off, the main concern transfers property, intellectual property, namely copyright, royalty, trademark, etc., and labor, to the new affiliate company.

Definition of Split-off

The term "spin-off" used to refer to a method of corporate restructuring, in which the shares of the subsidiary or unit of a company are transferred to the shareholders, in exchange for the parent company's equity. Hence, similar to the repurchase of shares, in which the parent company repurchases its shares.

Prior to the demerger, the entity splits a division or branch of the parent company, which after the demerger becomes a separate legal entity owned by some shareholders of the parent company and owned by the remaining shareholders, who do not return their actions for split-off actions.

a strategy to defend the subsidiary against hostile acquisitions, in addition to benefiting both the holding company and its subsidiary, which is destined for the split-off.

Key differences between spin-off and split-off

The differences between spin-off and split-off are detailed in the following points:

  1. A spin-off can be described as the divestment strategy, in which a part or a division of the company is divided and a new company is created that has a separate legal identity from the main one. On the other hand, the demerger is a corporate restructuring strategy through a contraction, in which the parent company offers its shareholder the shares of the new entity, which must renounce the shares of the parent company, on the acceptance of the shares in the new entity.
  2. In the spin-off, the shares of the resulting company will be assigned to the shareholders of the parent company on a pro-rata basis and will not have to renounce the shares of the parent company. On the contrary, in the event of a demerger, the assignment of shares will be carried out only to the shareholders who will transfer the shares of the parent company in exchange for the shares of the demerged company.
  3. The companies resort to the spin-off to create a separate identity of the subsidiary, while the spin-off often influenced when the company wants to create a difference between its main activities and the additional one.

Conclusion

Companies that want to make their operations more efficient and effective usually sell their unprofitable units or independent subsidiaries to focus on the main and most profitable operations. And to do this, spin-offs and split-offs are the best option for companies.