Coming from : Spin off , company section. Mion 11:38, 4 October 2006 (UTC) Many times in the business world, companies "spin off" (see also spin out) their operations. If for example a small group of employees has a great new idea, but the new product doesn't fit the pipeline of their company, it is one option for the corporation to even make money out of it by founding an own, separate start-up company for this business (one step further than sole intrapreneurship so to say). This way, they can still take advantage from the profits of this idea even if it does not fit their core competences.
The second big field of spin-offs are academic research groups at universities or around a PhD thesis where their members would like to leverage their knowledge and make money out of their findings. In this case, theoretical knowledge and research is "converted" into a company - producing for example their newly found invention/product, etc.
Another example for a corporate spin-off might be a company that produces ice cream and cars. It might split up into a company that makes cars, and a second company that makes ice cream. The current owners (the shareholders) of the company would own stock in both the company that makes cars and the company that makes ice cream.
The primary and nearly exclusive reason why this is done is due to the phenomenon of stock valuation. People who buy stock make money in two different ways: via dividends, and via selling the stock at a higher price than its original purchase price. The goal of all publicly traded companies then is to pay dividends and/or attempt to increase the value of their stock price.
Many academics and investors believe that the stock price of a company over the long term is most strongly influenced by the profits the company makes. However, the price people will be willing to pay for a companies stock relative to its profits (known as the PE ratio) is widely believed to differ depending on certain characteristics of the company. For example, fast growing companies are seen to be able to command a higher price relative to their current earnings, because it is felt that their profits will grow quickly enough to repay that price. Companies that have steady but small increases in profit are believed to be more valued than ones that have wild swings in profitability, because the swings in profitability can create swings in the stock price, making it more likely that the price will be temporarily down when one needs to sell the stock. In the same way, whole industries are seen to command a higher price relative to their earnings when compared with other industries.
Because of these widespread beliefs about stock valuation, company managers sometimes contemplate splitting their companies if they believe that "whole is less than the sum of its parts". For example, if ice cream companies are generally valued at 15 times their profits (perhaps for example because there is a big ice cream company trend occurring), and car companies are valued at 10 times their profits (because the car industry is seen as a slow growing industry). There is an ice cream/car conglomerate which has stock selling at $50 a share, 10 times the amount of its profits of $5 a share (half of its profits come from ice cream and half from cars). This company then splits into two, with its current stock holders getting a car company for $25 a share, and an ice cream company for $25 a share. The managers doing this hope that others will bid up the price of the ice cream company to $37.50 (15 times their profits) as is the norm for the ice cream industry. In this way, the original stock holder who had a share for $50's now has two shares which total $62.50.
For whoever wants ot integrate some part into the article.Mion 11:40, 4 October 2006 (UTC)
coming from spinoff - Corporate spinoff
A spin-off is defined as a pro-rata distribution of a majority, (often 80% or more) of shares of the subsidiary to the parent's shareholders.10 As a result of a 100% spin-off, the subsidiary11 becomes a totally independent company, with initially the same shareholder base as the parent company. Following the transaction, the former parent shareholders own two securities: The shares from the parent company and the shares from the spun-off subsidiary. Hence a spin-off leaves the portfolio decision (of whether to be shareholder of the parent and the subsidiary company or not) up to the shareholders. Unlike carve-outs, a spin-off does not involve exchange of any cash. Thus, a spin-off is not motivated by the company's desire to generate immediate cash, while carve-outs (and trade sales) often become a source of liquidity for financially distressed firms. A well-known example of a firm resulting from a spin-off is Syngenta AG, resulting from the spin-off and merger of the agrochemical divisions of Novartis and AstraZeneca.
A split-up is an alternative type of spin-off in which a company separates into several parts, distributes stock of each part to its shareholders, and ceases to exist. The most well-known example is the split-up of AT&T Corporation into three companies in 1996. AT&T Corporation was split-up in AT&T Corporation (national telephone network and cellular services), Lucent Technologies Inc. (communications hardware business and Bell Laboratories) and NCR Corp. (computer manufacturing). Mion 21:35, 20 August 2007 (UTC)
WHY IS THIS PAGE CALLED SPIN OUT???
I could not find evidence for common use of spin out rather than spin-off. The SEC definition is for spin-off not for spin out (nor spin-out) as far as I found. I would vote to rename this page and put an disambiguation page in to separate it from the media page. For people looking for "spin out" one could redirect here. The current arrangement is confusing. Another term that needs to be put in is "hive-down". As far as I could find that's the UK/Australian term for the SEC definition.
||This article needs attention from an expert on the subject. (August 2008)|