May 19 2025 |
What is a corporate spin-off?
A spin-off is when a company separates off a business unit, making it its own company, and distributes the shares in the new company to its existing shareholders.
Learn more: Spin-Off Process
5 successful corporate spin-off examples
1. Ferrari
Ferrari is a spin-off from Fiat Chrysler. In 2016, the Italian luxury sports car manufacturer became its own company, allowing both businesses to focus on very different areas of the auto industry.
2. Paypal
A classic corporate spin-off example is Paypal, which was made a separate entity from parent company eBay in 2015.
3. News Corp
News Corp is a well-known spin-off from 21st Century Fox, which became fully independent in 2013.
4. HPE (Hewlett Packard Enterprises)
HPE split from Hewlett Packard in 2015 to allow the parent company to continue with personal computers and printers as the primary focus while the new entity focused on IT, cloud, and software.
5. Kyndryl
Kyndryl is a recent spin-off from IBM. “The separation of Kyndryl is one of many actions we are taking to sharpen our focus on hybrid cloud and AI, leverage a portfolio clearly focused on technology and consulting, and achieve our growth objectives,” said Arvind Krishna , IBM chairman and chief executive officer.
3 spin-off examples in academia
It’s common for new companies to spin out of universities when academic research produces a commercial idea for which there’s a market. In fact, since 1997, Oxford University Innovation has spun out more than 70 companies .
In the case of University spin-offs, the spun-off company is more akin to a startup than a spun-off business unit from a conglomerate. Let’s review some examples:
Janssen Vaccines
In 1993, Introgene was established as a spin-off of Leiden University. In 2000, Introgene became Crucell through an acquisition of U-Bisys. In 2006, Crucell and Swiss Berna Biotech, Swedish SBL Vaccines and US-based Berna Products joined to become the sixth largest vaccine company in the world. In 2009, Johnson & Johnson bought 18% stake in Crucell, increasing to more than 95% by February 2011. In 2014, the subsidiary was renamed to Janssen Vaccines .
Locus Biosciences
Locus Biosciences was founded as a spin-off from North Carolina State University (NCSU) in 2015. In 2019, the company entered into a strategic collaboration with Janssen worth up to $818 million.
Lycos
Lycos is a university spin-off that began in May 1994 as a research project at Carnegie Mellon University in Pittsburgh. In April 1996, the search engine company completed the fastest initial public offering from inception to offering in NASDAQ history. It also became the first search engine to go public.
Corporate spin-off advantages and disadvantages
Spin-off advantages
- The spin-off of a subsidiary usually produces a tax-free dividend to shareholders - the Parent avoids paying tax on the sale of the unit.
- Separation of Parent and subsidiary sharpens strategic focus for both businesses.
- Parent can divest itself of a business even if it has received no satisfactory offers.
Spin-off disadvantages
- Shareholder churn: some shareholders of the original company may not want shares in the newly formed company.
- Legal and setup costs.
- Short term volatility in share price.
To spin or carve?
If you’re considering a demerger , you might wonder whether to spin-off or carve-out . If you’re looking to raise capital and retain an interest in the subsidiary, an equity carve-out is the answer. However, if you’re looking to divest yourself of a business unit in a tax-efficient way, a spin-off could be the best solution.
In reality, it’s fairly common to have an equity carve-out followed later by a spin-off. This is because the IPO for the carve-out generates a market valuation for the subsidiary business as well as a legitimate transaction history.
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