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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Still, the averages mask the wide variation in performance among companies that have been spun off. For every Motorola Mobility, the cellphone maker spun off by Motorola in 2011 and promptly acquired by Google (and then Lenovo), there's a Delphi, spun off by General Motors in 1999 only to end up in bankruptcy six years later.
The business to be spun off would be a pure play maintenance, repair and operating supplier to the global energy and industrial sectors with 415 locations in 26 countries.
Moreover, the parent firm chooses the CEO when the firm is spun off, inviting the possibility of adverse selection due to politics internal to the parent firm as some authors have suggested (Wruck & Wruck, 2002).