Spin-Off
A new independent company created by separating a division from a parent company.
What is Spin-Off?
A spin-off is a corporate action in which a parent company creates a new, independent publicly traded company by distributing shares of a subsidiary or division to its existing shareholders. Shareholders receive shares in the new entity in proportion to their parent company holdings. Spin-offs allow companies to unlock value in divisions that are undervalued within the parent structure, sharpen management focus, and give each entity the flexibility to pursue its own capital allocation strategy. They are generally tax-free for shareholders if structured under IRS Section 355.
Example
In 2015, PayPal was spun off from eBay as an independent public company. eBay shareholders received one PayPal share for every eBay share held. By 2021, PayPal's market cap exceeded eBay's by roughly 10 times.
Source: SEC — Corporate Restructuring