Spin-Off
At times, it makes sense (from a valuation or operations perspective) to operate two separate companies within the same corporate structure, as two independent entities. This process involves the separation of a company and their subsidiary (or counterpart in a holdings structure). Opposite of a merger, the board decided that these companies would thrive on their own. Some examples of where this may take place : A beverage company separating from their bottling segment, a robotics company separating their hardware and software arms, or a multi-national conglomerate spinning-off their European division to operate independently of their American operations.
Transaction which separate a company into two or more parts engage in a process that takes one of the following forms :
Spin-Off :
As described above, a spin-off separates a portion of the company from the remainder. The parent distributes shares of a new entity (SpinCo) that will begin trading individually from that of the existing shares. This stock is distributed to existing shareholders.
Split-Off :
Similar to a spin-off, this transaction involves the separation of a company into multiple parts. Instead of a straightforward process of distributing equity to shareholders, the transaction will involve an exchange ratio where shareholders have the option to choose their investment preference (receive a defined amount of shares in the new SpinCo per share held of the parent, or keep ownership stake in the parent as is).
Carve-Out :
In this scenario, a company is looking to sell ownership in a segment of their business operations. Similar to an IPO, this process allows the parent company to offer shares to the public and form a new entity that trades on its own valuation. Companies may sell this ownership in its entirety, sell a small proportion of the equity, or sell a portion of the spinCo with intention of selling more equity over time. Existing shareholders may receive a dividend as either a ratio number of shares of the spinCo, or a cash payment.. but generally this transaction is chosen as it allows the company to increase their balance sheet or offer an avenue for liquidity to sell interest in the spinCo.
Concepts & Processes
Record Date :
Similar to dividend entitlement, this is the date in which the company identifies shareholders who retain rights to receive shares of the spinCo.
Ex-Distribution Date :
The first date in which the stock trades regular way, without the right to receive the equity interest distributed in the spin-off.
When-Issued :
"When-Issued" trading is set up to create a market for new issues that are authorized but not yet issued/traded. These contracts will trade until the new issue is a public security, and are settled once the regular way trading commences.
When-Distributed :
The "Ex-Distribution" market pertains to the parent symbol, traded as a contract to be settled once regular way trading commences, as delivery for shares post distribution.
Regular-Way Trading :
This refers to the parent company (or original stock prior to spin-off), that now exists post distribution of the spun off company.