Spin-Off


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Spin-Off

The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders.

When a spin-off occurs, the shareholders of the parent corporation are not required to surrender any of their parent corporation stock in exchange for the subsidiary's stock.

In the event that the distribution of stock to the parent corporation's shareholders amounts to a dividend, the distribution can be taxed pursuant to provisions of Income Tax statutes.

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Determination of a spin-off company's market capitalization will continue to be made based on when-issued trading, if available.
We examine a different aspect of spin-offs, that is, whether or not an outside investor purchases a substantial equity stake in the newly created firm at or around the spin-off date.
The IRS has also stated it will no longer issue supple mental letter rulings under section 355 unless the request represents a significant issue, adding a change in circumstances after the spin-off will ordinarily not represent significant issue.
Although the IRS has been issuing additional guidance via published rulings, taxpayers should still obtain a letter ruling before undertaking a spin-off.
UCG has put nearly $25 million of its own money into its two spin-off companies APE and Tech Target.
Notwithstanding the compelling corporate business objectives of Fortune Brands' spin-off of Gallaher, the transaction probably would not have been undertaken had the proposed regulation been finalized before the deal was concluded.
According to management, in the proposed transaction, Titan will spin-off its PCB Division and retain its Communications Division and the remainder of its Homeland Security and Electronics Division.
Under the proposed regulations, stock in purchased subsidiaries was usually considered disqualified stock, thereby preventing the tax-free spin-off of subsidiaries purchased by Distributing during the five-year period.
In addition, the vague scope of the term "plan (or series of related transactions)" creates substantial uncertainty for taxpayers, which has a chilling effect on legitimate, commercial spin-off transactions.
Also favorable for Sears bondholders, the spin-off eliminates the potential need to add debt or divert cash from the retailing business in the event that insurance claims from a severe catastrophe create the requirement of adding capital to Allstate.
For example, in a spin-off, the original option no longer has the economic value it had prior to the restructuring, because the entities have been separated and the sum of the separate economic parts may not equal the original economic whole.
The Board of Directors has announced that March 1, 2007 shall be the record date for purposes of the spin-off of Secure Netwerks.