Spin-Off

Brief Definition

A spin-off is a corporate action in which a company creates a new, independent company by separating part of its business. The parent company distributes shares of the new company to its existing shareholders, usually on a pro-rata basis.

Further Explanation

A spin-off is a corporate action in which a company creates a new, independent company by separating part of its business. The parent company distributes shares of the new company to its existing shareholders, usually on a pro-rata basis. This allows the new company to operate independently, often with its own management and strategic direction, while the parent company focuses on its core business.

Example:
Suppose ABC, a large conglomerate, has a division that manufactures electronics. ABC decides to spin off this electronics division into a separate company called DEF. ABC distributes shares of DEF to its shareholders, so they now own shares in both ABC and DEF. DEF becomes an independent entity with its own management, while ABC continues to focus on its other business areas.