While break-ups are bad news in the romance department, shareholders generally see them as a win. Corporate spinoffs not only generate an uptick in stock price, but can also make both companies more profitable.
There are approximately 50 spinoffs each year in the United States. Expedia made headlines several years ago with its spinoff of Trip Advisor. Currently, the business world is buzzing over when and if EBay, Inc. will spinoff its extremely successful PayPal unit. In a traditional spinoff, a corporation distributes 100 percent of its ownership interest in an existing division or business unit as a stock dividend to existing shareholders. Alternatively, shares can also be sold to the public via an initial public offering (IPO) transaction known as a “carve out.” In either case, the end result is a new and distinct corporate entity.
In many cases, corporations choose to break off a subsidiary or business division in order to streamline their operations.
Likely candidates include unrelated or underperforming units that may perform better on their own, while also allowing the parent company to focus on its core products or new offerings.
As with any corporate divestiture, there are both benefits and disadvantages. Spinoffs are beneficial because they result in so-called “pure play” companies that are attractive to investors because of their narrow focus on one particular industry segment or business strategy. Spinoffs also allow each company to pursue individual capital structures, operation plans, and growth strategies that are tailored to its business needs. They also do not generate tax liability, while proceeds from a sale are subject to capital gains taxes.
Of course, there are downsides. While share prices generally stabilize or even perform better, both the parent and the spinoff are likely to experience volatility in the short term. In addition, spinoffs can be extremely long and complex transactions, particularly in cases where the unit to be spun off is deeply interconnected with the parent company. As with any potential divestiture, careful planning and consultation with a team of experienced professionals is key to success.
Crypto Securities Law: When Tokens Become Investment Contracts
The application of traditional federal securities laws to crypto assets continues to evolve. In some cases, the Securities and Exchange Commission (SEC) considers tokens and other digital assets to be securities. This makes them subject to federal securities law, including the Securities Act of 1933 and the Securities Exchange Act of 1934. This classification has […]
The Due Diligence Process for NY Condominiums and Cooperatives
While the New York City real estate market can be extremely competitive, moving too quickly often backfires. Before purchasing a condominium or cooperative in New York City, it is important to do you homework. Purchasing property in NYC can involve a dizzying number of legal issues. These include condo and co-op rules, rent restrictions, and […]
Smart Contract Legal Issues: Drafting Agreements for Blockchain
Smart contracts feature a unique blend of legal agreement and technical code. This innovation has the potential to reshape how business is conducted. At the same time, smart contract legal issues around enforceability, jurisdiction, identity, and compliance are common. The legal framework for these self-executing agreements is still evolving. What Are Smart Contracts? Smart contracts, […]
Are Stay Interviews the Key to Retaining Top Talent?
Retaining top talent continues to be one of the greatest challenges facing employers today. Even in an employer’s market, the loss of a key employee can disrupt operations and result in significant costs. While compensation plays a role, long-term retention often depends on workplace culture, communication, and employee engagement. One increasingly popular strategy for improving […]
Secured transactions form the backbone of a wide range of business dealings, including business loans, mortgages, and inventory financing. Because the stakes are often high and relatively minor oversights can have drastic consequences, lenders and borrowers should thoroughly understand how to form an enforceable security agreement that protects their legal rights. What Is a Secured […]
Don’t Cash a “Paid in Full” Check Without Understanding the Legal Implications
Cashing a check marked “paid in full” can be a risky endeavor, particularly if you don’t fully understanding the legal implications. If you are owed more than the amount of the check you accept and deposit, you may waive your right to collect the full disputed amount. That is why you should consider either rejecting […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
