Practical Law Glossary Item 0-385-7160 (Approx. 2 pages)
Glossary
Spin-off
A mechanism for separating out a division or line of business from its parent company. Spin-offs are typically used to increase stockholder value by increasing the value of the business being spun-off or removing a business that no longer fits within the parent structure. In a traditional spin-off, the parent company forms a subsidiary corporation (if the line of business or division is not already a subsidiary) and transfers the relevant assets to that subsidiary. The parent company then dividends shares of that subsidiary to the stockholders of the parent company. Alternative structures include:
Split-off: an exchange offer in which the stockholders of the parent company exchange their stock in the parent for stock in the new entity.
Split-up: the parent distributes the stock of its subsidiaries to its stockholders and then the parent dissolves. Following the split-up, the stockholders of the former parent own the stock of the different subsidiaries.
Partial spin-off: a spin-off where the parent company retains a minority interest in the subsidiary.
Subsidiary offerings: the parent makes a public offering of its subsidiary's stock.
Tracking stocks: the parent creates an additional class of shares intended to track the performance of a subsidiary. The stock can then be distributed in whichever way the parent chooses (for example, to the public or to its existing stockholders).