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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These figures demonstrate that, in the Middle East, the overwhelming majority of divestitures are created through share sales; corporate spin-offs, on the other hand, are not a common way to create value, especially within diversified holding companies in the region," said Ihab Khalil, Partner and Managing Director at BCG Middle East.
A spin-off is the creation of an independent company through the roll-over of an existing business/division of a company to a new legal entity.
Different types of corporate spin-offs have different founding conditions.
We compare these "sponsored" spin-offs to "conventional" spin-offs in terms of long-run stock performances, return on assets (ROA), growth opportunities, capital expenditures, and earnings per share (EPS).
Shane describes this phenomenon as spin-offs based on intellecutal capital developed at an academic institution.
Previously, such so-called comfort rulings were available to resolve questions such as (i) whether a spin-off has an adequate corporate business purpose, (ii) whether a spin-off will be regarded as used principally as a device for the distribution of earnings and profits, and (iii) whether a spin-off and any prior or subsequent acquisition of stock in the Parent or the Spinco are part of a plan under section 355(e).
2002-49, another important ruling on the active trade or business requirement of a spin-off.
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.
The formation of the new subsidiary provides a vehicle to consummate a transaction, spin-off an asset to our shareholders and/or to facilitate the financing of such a transaction".
1) A number of related provisions and conforming amendments were adopted at the same time, the cumulative effect of which is to revise substantially the conditions for obtaining a tax-free separation -- whether as a spin-off, split-off, or split-up(2) -- of one corporation from another pursuant to section 355.
25, Accounting for Stock Issued to Employees, when employers change the provisions of stock option plans following a spin-off or recapitalization.