In contrast to a sell off, usually no cash is generated. Companies often sell unproductive or noncore subsidiary businesses as a spin off. The main reason for this is that the value of the parts of the separated companies is supposed to be greater than before, thus increasing shareholder value.
The management of the spin of is set free from the parent company. This provides new incentives as it can now focus exclusively on the opportunities of the special business segment. Furthermore, spin of s have to issue separate financial statements, so that shareholders receive more detailed information concerning the performance of the company.
This helps attract more investors. On the contrary, expenses in marketing, administration, and research tend to rise with the business now operating on its own. Raising capital from banks or institutional investors might also be more dii cult for smaller companies. Partial spin offs are also known as equity carve outs.
In this case, the parent company only sells a minority of shares in a subsidiary keeping a controlling stake. The rest of the shares are usually spun of later when the stock price has risen. Spin of s also refer to university research groups or business incubators setting up a new company.
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