Corporate Spin Off: Meaning, Pros & Cons, Process, Example

What is a corporate spin off?

A corporate spin off is a strategic business maneuver where a parent company separates one of its existing business units or subsidiaries to form a new, independent entity. The new entity takes with it the operations, assets and liabilities of the division or business unit and operates as a standalone organization with its own management team and board of directors. 

Existing shareholders of the parent company receive shares in the new company on a pro rata basis, without the need to surrender any of their parent company stock. 

Spin off vs carve out

A corporate spin off and a carve out are both strategies used by companies to divest or separate business units. Each takes a significantly different approach to achieve a different outcome. 

In a spin off, the new, independent company’s shares are distributed to the parent company’s existing shareholders. The parent company relinquishes control over the new company, so that the spun-off business unit operates under its own independent management and governance structure. 

In a carve out a portion of the subsidiary’s shares are sold to new investors through an initial public offering (IPO). This allows the business unit to operate more independently, while the parent company retains a significant stake. The parent company retains some control over the business unit and receives cash from the sale of the shares. 

Spin off vs divestiture

A corporate spin off is where a new, independent company is created by distributing shares of the separated business unit to the parent company’s existing shareholders. A company divestiture is when part or all of the company’s operations or assets are disposed through sale, exchange, closure or bankruptcy. The parent company either sells the business unit to another company or liquidates it, often retaining no control or ownership. The parent company receives cash from the sale, unlike in a spin off, which can be used to reduce debt or invest in core business. 

See also: Benefits of divestiture

Why spin off a company

A company may choose to spin off a business unit or subsidiary for several strategic reasons. 

Strategically streamline and focus resources

After a corporate spin off, the parent company and the newly independent business unit can focus on core competencies, improve operational efficiency and profitability. Each company manages its own operations and sets its own strategic goals, focusing resources to achieve these goals. 

To unlock hidden value

If the spin off was an underperforming unit within the parent company, it can gain autonomy to attract new investment and resources. The market can assess the spin-off’s potential independently of the parent company. This can lead to a higher valuation. 

To isolate and manage risk

A spin off can separate financial and operational risks from the parent company to protect its stability and reputation. It can also increase the ability of both the parent and the spin off to adapt to regulatory, economic or market changes with more agility. 

To foster innovation

When a spin off has a competency that is outside or on the fringes of the parent company’s core business, gaining independence provides the opportunity to focus on this and reach a target market with products or services that are different to that of the parent company. The spin off can attract outside investment capital and apply this to driving the new products and services forward. 

To ensure regulatory compliance

Business units with different regulatory needs can be separated in a spin off, potentially making compliance easier to achieve for the parent company and the spin off company. 

Spin off advantages and disadvantages

Advantages

• Allows the parent company to divest itself of a business even in the face of no buyers or decent offers.

• The so-called “conglomerate discount” – stockmarkets value a diversified large company at less than the sum of its individual business parts.

• Separation allows businesses moving in different directions, or with a different core focus, to do so more freely.

• If well-executed, a company spin off should create value for both the newly-created entity and the original parent company—delivering long term returns for stakeholders.

Disadvantages

• Such a significant separation can cause volatility in the share price. 

• Some shareholders of the original company may not want shares in the spin off company, so it’s not uncommon to see high selling activity. 

• Short term cost of legal separation and set up of a new entity.

• Employee resistance to change.

Examples of successful corporate spin offs

PayPal

In 2015 US corporation eBay spun off PayPal, with a market cap of $49 billion. Since the spin off, PayPal has grown significantly, expanding its services from digital payments into new areas like credit options and investment products. Acquisitions like Venmo have further contributed to its success and in late 2024 its market cap was $82 billion. 

Oxford Nanopore

The University of Oxford in the UK spun off Oxford Nanopore in 2005. Oxford Nanopore is now a leading technology company specializing in molecular analysis devices. The spin off has a high success rate commercializing university research and has received significant investment and success in the biotech industry. The company went public on the London Stock Exchange in September 2021 and in April 2025 has a market cap of $1.28 billion. 

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. This spin off company reported an annual revenue of USD $27.979 billion in 2022.

CyberSource

CyberSource was a spin off from software.net (which later became beyond.com). The parent company developed a fraud detection system in response to being afflicted with recurrent instances of credit card fraud. The system was productized and spun off in 1995 and eventually acquired by Visa for ~$2B.

See also: Corporate spin-off examples

Corporate spin off process

The first step in undertaking a corporate spin off is to clearly articulate the reasons for the spin off and how it aligns with the parent company’s strategic goals. 

The next step is to identify which assets, contracts and intellectual property will transfer to the spin off. During this step, the parent company should also evaluate the market demand and competitive position of the spin off entity.

Once the initial decision-making process identifies a pathway forward, due diligence is key to identify any potential issues. An external valuation of the spin off may also be beneficial to shareholders. 

From here, spinning off a company involves progressing through a seven-step process beginning with identifying the right management team to see the process through, engaging third party consultants and performing legal, regulatory and tax due diligence. The best place to share sensitive information with external parties is in a secure virtual data room, with granular access control and full traceability. 

Learn more: How to spin off a company

Spin off due diligence

In preparation for a company spin off, the organization must go through the due diligence process. This is a thorough collation and analysis of the company’s financial, tax, legal, commercial, IT, operational, environmental and human resource details.

Learn more: Due Diligence

Corporate spin off questions

What are the main benefits of a corporate spin off?

Corporate spin offs enable the parent company and new entity to focus on core competencies, improving operational efficiency and profitability. A spin off can unlock hidden value in an underperforming business unit by giving autonomy to attract new investors and resources. 

How long does a corporate spin off take?

A corporate spin off can take anywhere from six months to a year to plan and finalize. The new company takes assets and liabilities from the parent company, including employees, intellectual property, technology or existing products, before issuing shares and setting up its primary cost. 

Are spin offs tax free?

A spin off can be tax free if the parent company structures the maneuver to avoid capital gains tax liability and reduce tax burden for shareholders. However, a spin off is taxable when the parent company sells the business unit or subsidiary outright through IPO or sale to another company (acquisition).