Splitoff

Split-off is a corporate action in which a company separates a portion of its business by distributing ownership of a subsidiary to its shareholders in exchange for their shares of the parent company. The result is two independent entities: the subsidiary, owned by the shareholders who participate in the split-off, and the remaining parent, owned by the non-participating shareholders. The process is typically used when management wants to focus on core operations, unlock value, or restructure the group without selling the subsidiary to external buyers.

Mechanics commonly involve an exchange ratio set by the company. Shareholders may tender a portion of their parent stock in return for a specified amount of subsidiary stock. Those who do not participate keep their parent shares. After completion, the subsidiary becomes independently owned by the participating shareholders, while the parent continues with the non-participating owners. Governance and operations of the two entities diverge, though the exact ownership split depends on who elects to participate.

Split-offs are contrasted with spin-offs. In a spin-off, shareholders receive shares of the new company while retaining their parent shares; in a split-off, shareholders exchange parent shares for subsidiary shares. The structure can offer strategic flexibility, tax planning opportunities, and a way to reorganize assets, but it also introduces complexity, potential tax consequences, and changes in control dynamics.

Accounting and legal treatment vary by jurisdiction and standards. In many cases, the transaction is treated as a corporate reorganization, with adjustments to the parent’s and subsidiary’s equity and potential deconsolidation from financial statements.