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. 

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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.