Splitoffs

Splitoffs are a corporate restructuring action in which a parent company separates a portion of its business into a newly formed company and offers shares of the new company to existing shareholders in exchange for a portion of their shares in the parent. After the transaction, the parent and the new company operate as independent entities. In a split-off, shareholders exchange some of their parent shares to receive shares of the new company, typically via a stated exchange ratio, which reallocates ownership between the two entities.

The arrangement differs from a spin-off, where shareholders receive the new company's shares without surrendering parent shares, and from an equity carve-out, where the subsidiary sells a minority stake to external investors while the parent retains full ownership of both entities. In a split-off, the parent may reduce its stake in the combined business, and control dynamics depend on who accepts the exchange and how remaining ownership is distributed. Valuation of the two entities and the chosen exchange ratio are central to structuring the deal. Regulatory approvals, corporate governance terms, and tax considerations are common elements of the process and can influence whether a split-off proceeds and how favorable its tax treatment may be.

Advantages of splitoffs include the ability to unlock value, streamline focus on core activities, and tailor capital structures. Disadvantages can include reduced liquidity, potential complexity, and changes in control or voting power. Related concepts include spin-offs, equity carve-outs, and divestitures.