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A corporate spin-off, also known as a spin-out, or starburst or hive-off, is a type of
corporate action A corporate action is an event initiated by a public company that brings or could bring an actual change to the securities—equity or debt—issued by the company. Corporate actions are typically agreed upon by a company's board of directors ...
where a company "splits off" a section as a separate business or creates a second incarnation, even if the first is still active.


Characteristics

Spin-offs are divisions of companies or organizations that then become independent businesses with assets, employees, intellectual property,
technology Technology is the application of knowledge to reach practical goals in a specifiable and Reproducibility, reproducible way. The word ''technology'' may also mean the product of such an endeavor. The use of technology is widely prevalent in me ...
, or existing products that are taken from the parent company. Shareholders of the parent company receive equivalent shares in the new company in order to compensate for the loss of equity in the original stocks. However, shareholders may then buy and sell stocks from either company independently; this potentially makes investment in the companies more attractive, as potential share purchasers can invest narrowly in the portion of the business they think will have the most growth. In contrast, divestment can also sever one business from another, but the assets are sold off rather than retained under a renamed corporate entity. Many times, the
management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a Government agency, government body. It is the art and science of managing resources of the business. Management includ ...
team of the new company are from the same parent organization. Often, a spin-off offers the opportunity for a division to be backed by the company but not be affected by the parent company's image or history, giving potential to take existing ideas that had been languishing in an old environment and help them grow in a new environment. Spin-offs also allow high-growth divisions, once separated from other low-growth divisions, to command higher valuation multiples. In most cases, the parent company or organization offers support doing one or more of the following: * Investing equity in the new firm * Being the first customer of the spin-off that helps create cash flow * Providing incubation space (desk, chairs, phones,
Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
access, etc.) * Providing legal, finance, or technology services All the support from the parent company is provided with the explicit purpose of helping the spin-off grow.


U.S. Securities and Exchange Commission

The United States Securities and Exchange Commission's definition of "spin-off" is more precise. Spin-offs occur when the equity owners of the parent company receive equity stakes in the newly spun off company. For example, when
Agilent Technologies Agilent Technologies, Inc. is an American life sciences company that provides instruments, software, services, and consumables for the entire laboratory workflow. Its global headquarters is located in Santa Clara, California. Agilent was establi ...
was spun off from Hewlett-Packard in 1999, the stock holders of HP received Agilent stock. A company not considered a spin-off in the SEC's definition (but considered by the SEC as a technology transfer or licensing of technology to the new company) may also be called a spin-off in common usage.


Other definitions

A second definition of a spin-out is a firm formed when an employee or group of employees leaves an existing entity to form an independent start-up firm. The prior employer can be a firm, a university, or another organization. Spin-outs typically operate at
arm's length The arm's length principle (ALP) is the condition or the fact that the parties of a transaction are independent and on an equal footing. Such a transaction is known as an "arm's-length transaction". It is used specifically in contract law to ar ...
from the previous organizations and have independent sources of financing, products, services, customers, and other assets. In some cases, the spin-out may license technology from the parent or supply the parent with products or services; conversely, they may become competitors. Such spin-outs are important sources of technological diffusion in high-tech industries. Terms such as hive-up, hive down or hive across are sometime used for transferring a business to a parent company, a subsidiary company or a fellow subsidiary.


Reasons for spin-offs

One of the main reasons for what ''
The Economist ''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Eco ...
'' has dubbed the 2011 "starburst revival" is that "companies seeking buyers for parts of their business are not getting good offers from other firms, or from private equity". For example, Foster's Group, an Australian beverage company, was prepared to sell its wine business. However, due to the lack of a decent offer, it decided to spin off the wine business, which is now called Treasury Wine Estates.


Conglomerate discount

According to ''The Economist'', another driving force of the proliferation of spin-offs is what it calls the "
conglomerate discount Conglomerate discount is an economic concept describing a situation when the stock market values a diversified group of businesses and assets at less than the sum of its parts. The explanation of this phenomenon comes from a conglomerate's inabilit ...
" — that "stockmarkets value a diversified group at less than the sum of its parts".


Examples

Some examples of spin-offs (according to the SEC definition): *
Guidant Guidant Corporation, part of Boston Scientific and Abbott Labs, designs and manufactures artificial cardiac pacemakers, implantable cardioverter-defibrillators, stents, and other cardiovascular medical products. Their company headquarters is lo ...
was spun off from Eli Lilly and Company in 1994, formed from Lilly's Medical Devices and Diagnostics Division. *
Agilent Technologies Agilent Technologies, Inc. is an American life sciences company that provides instruments, software, services, and consumables for the entire laboratory workflow. Its global headquarters is located in Santa Clara, California. Agilent was establi ...
spun off from Hewlett-Packard in 1999, formed from HP's former test-and-measurement equipment division. Later in 2014, Keysight was spun off from Agilent Technologies. *
Expedia Group Expedia Group, Inc. is an American online travel shopping company for consumer and small business travel. Its websites, which are primarily travel fare aggregators and travel metasearch engines, include Expedia.com, Hotels.com, Vrbo (previous ...
was spun off from
Microsoft Microsoft Corporation is an American multinational technology corporation producing computer software, consumer electronics, personal computers, and related services headquartered at the Microsoft Redmond campus located in Redmond, Washin ...
in 1999, with its eponymous subsidiary
Expedia.com Expedia Inc. is an online travel agency owned by Expedia Group, an American online travel shopping company based in Seattle. The website and mobile app can be used to book airline tickets, hotel reservations, car rentals, cruise ships, and vacat ...
. * DreamWorks Animation was spun off from
DreamWorks Studios DreamWorks may refer to: * DreamWorks Pictures, an American film production company of Amblin ** DreamWorks Television, an American television production company and division of the film studio ** DreamWorks Records, an American record label and f ...
in 2004. * Covidien was spun off from
Tyco International Tyco International plc was a security systems company incorporated in the Republic of Ireland, with operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco International was composed of two major b ...
in 2007. *
TE Connectivity TE Connectivity is an American Swiss-domiciled technology company that designs and manufactures connectors and sensors for several industries, such as automotive, industrial equipment, data communication systems, aerospace, defense, medical, o ...
was spun off from
Tyco International Tyco International plc was a security systems company incorporated in the Republic of Ireland, with operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco International was composed of two major b ...
in 2007. * Cenovus Energy was spun off from Encana (now Ovintiv) in 2009. * AOL was a Time Warner spin-off in 2009; this effectively was a
demerger A demerger is a form of corporate restructuring in which the entity's business operations are segregated into one or more components. It is the converse of a merger or acquisition. A demerger can take place through a spin-off by distributed or t ...
, as AOL had previously merged into Time Warner. * Ocean Rig UDW Inc was spun off from Dryships Inc in September 2011. *
News Corporation News Corporation (abbreviated News Corp.), also variously known as News Corporation Limited, was an American multinational mass media corporation controlled by media mogul Rupert Murdoch and headquartered at 1211 Avenue of the Americas in New ...
's publishing operations (and its broadcasting operations in Australia) were spun off as News Corp in 2013. The previous News Corporation's remaining media properties were retained under the name 21st Century Fox. In turn, 21st Century Fox was acquired by
The Walt Disney Company The Walt Disney Company, commonly known as Disney (), is an American multinational mass media and entertainment industry, entertainment conglomerate (company), conglomerate headquartered at the Walt Disney Studios (Burbank), Walt Disney Stud ...
in 2019, but most of its broadcast and cable properties were spun off to the new
Fox Corporation Fox Corporation (stylized in all-caps as FOX Corporation) is a publicly traded American mass media company operated and controlled by media mogul Rupert Murdoch and headquartered at 1211 Avenue of the Americas in New York City. Incorporated ...
while Disney retained the film and television production units. * After being acquired by Sega,
Index Corporation , formerly known as , is a Japanese corporate information and communications technology company owned by Sawada Holdings. "Index Corporation" was a corporate name used by three different Japanese companies, between 1997 and 2016, the last one be ...
's video game operations were re-branded as Atlus, the name of a predecessor company, while its contents and solution businesses were spun off as a new company using the Index Corporation name in 2013. * Mallinckrodt Pharmaceuticals Plc was spun off from Covidien in 2013. * Viacom was spun off from
CBS CBS Broadcasting Inc., commonly shortened to CBS, the abbreviation of its former legal name Columbia Broadcasting System, is an American commercial broadcast television and radio network serving as the flagship property of the CBS Entertainm ...
in 1971. *
Fortive Fortive is an American diversified industrial technology conglomerate company headquartered in Everett, Washington. Fortive was spun off from Danaher in July 2016. Mitchell Rales and Steven M. Rales, Danaher's founders, retained board seats ...
and Envista were spun off from Danaher in 2016 and 2019 respectively. *In
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korean Peninsula and sharing a land border with North Korea. Its western border is formed by the Yellow Sea, while its eas ...
, the then-
CJ E&M CJ E&M (Hangul: 씨제이이앤엠, an initialism for CJ Entertainment & Media) is a South Korean entertainment and mass media company created by CJ Group in 2011. As of July 2018, CJ E&M is a division of CJ ENM. History CJ E&M was established a ...
(now CJ ENM Entertainment Division) spun off its drama production and distribution division into a new subsidiary company called "
Studio Dragon Studio Dragon Corporation () is a South Korean drama production, marketing and distribution company under CJ ENM's E&M division. It was established on May 3, 2016, as a spin-off from E&M Media Content. The company joined the KOSDAQ index of Ko ...
" in May 2016. Examples following the second definition of spin-out: * Fairchild Semiconductor was a spin-out of Shockley Transistor; the founders were Shockley's " traitorous eight" * Intel was in turn a spin-out of Fairchild, as were many firms in the semiconductor industry


Academia

An example of companies created by technology transfer or licensing: * Since 1997,
Oxford University Oxford () is a city in England. It is the county town and only city of Oxfordshire. In 2020, its population was estimated at 151,584. It is north-west of London, south-east of Birmingham and north-east of Bristol. The city is home to th ...
's Isis Innovation has helped create more than 70 spin-out companies, and now, on average, every two months a new company is spun out of "academic research generated within and owned by the University of Oxford". Over £266 million in external investment has been raised by Isis spin-out companies since 2000, and five are currently listed on the London Stock Exchange's Alternative Investment Market (AIM).


See also

*
Demerger A demerger is a form of corporate restructuring in which the entity's business operations are segregated into one or more components. It is the converse of a merger or acquisition. A demerger can take place through a spin-off by distributed or t ...
* Divestment * Equity carve-out * Stub (stock) * Successor company


References


Further reading

* EIRMA (2003) "Innovation Through Spinning In and Out", ''Research Technology Management'', Vol. 46, 63–64. * * Rohrbeck, R., Hölzle K. and H. G. Gemünden (2009)
"Opening up for competitive advantage: How Deutsche Telekom creates an open innovation ecosystem"
''R&D Management'', Vol. 39, S. 420–430.


External links

* {{Corporate finance and investment banking spin-off Restructuring Types of business entity