Difference Between Spin-Off, Split-Off, Split-Up and Carve-Out (With Table)

Difference Between Spin-Off, Split-Off, Split-Up and Carve-Out (With Table)

A spin-off, split-off, split-up, and carve-out are the commonly used words in the business world. These are the different divesting methods for diversifying a company’s portfolio. This also helps in achieving the financial goal of a company. 

A spin-off, split-off, split-up, and carve-out are used when a company buys and sells the stock of the company.

Spin-Off vs Split-Off vs Split-Up vs Carve-Out

The main difference between spin-off, split-off, split-up, and carve-out is that split-off gets used when a parent company sells or distributes its stock to create a new company. The spin-off gets used when a parent company allows its shareholders to trade the shares with other divesting companies or maintain the share they have been given. Split-up is used when a parent company breaks into two or more benefiting companies. Carve-out is used when a parent company sells the shares of its previous benefiting or non-benefiting companies to the public.

Difference Between Spin Off Split Off Split Up and Carve Out

Spin-off refers to when a parent company creates a new company and issues its share to the existing shareholders.

Split-off refers to the term when the shareholders of a parent company exchange their shares for the newly created entity.

Split-up is when a parent company splits into two or more daughter companies while the parent companies do not survive.

Carve-out refers to when a parent company creates a new corporation and sells the shares using an Initial Public Offering. No shares are given to the previous shareholders of the parent companies.

PropertiesSpin-offSplit-offSplit-upCarve-out
DefinitionA parent company makes a new company and gives its share to existing shareholders.A parent company creates a daughter company, where the existing shareholders give their shares in return for the new share.In case, a parent company does not survive it breaks down into two parts.A parent company creates a new company where existing shareholders are not allowed to buy shares.
ExamplePaypal created from eBay is an example of Spin-off.The creation of Synchrony Financial from Generic Electric (parent) is an example of split-off. The split-up of United Technologies into three companies, United Technologies, Carrier, and Otis Elevator Company.Las Vegas is the carve-out of Sands China.
IPOThis is not open to the public.It is not open to normal people.The public is not allowed to buy shares.This is open to the public.
TaxationNon-taxable event.Taxable.Taxable.Government can interfere and force a company to break down.
ShareholderShareholders buy the stocks.Shareholders exchange the shareholder with the new company.A shareholder can sell or maintain the stocks.Shareholders are not allowed to buy.

What is Spin-Off?

This is also termed Divestiture. Divestiture is creating a new company from the parent company while the shares are issued to the existing shareholders only. The most prominent example of spin-off companies is PayPal and eBay. PayPal is the spin-off of its parent company, eBay. 

On 17 July 2015, eBay created a new company, Paypal, where the shareholders received one share from each part of the share they owned from eBay. The shareholders do not exchange or give up their past shares; they receive shares from the newly created company.

What is Split-Off?

In the previous company, shareholders did not exchange their shares, but the company’s shareholders that got split-off exchanged their previous shares with the new shares. The most casual example of this is the spin-off of Synchrony Financial from the existing company, General Electric.

On 17 November 2015, General Electric’s CEO decided to split General Electric into Synchrony Financial. During the process, CEO Jeffery Immelt offered its existing shareholders to get 1.0505 shares in the newly made company by exchanging one share of the parent company. 

However, it is important to remember that the shareholders do not necessarily exchange their shares from the previous company. They are free to keep the shares in the existing company. The market value of an existing or parent company declines once it gets split off into a new company.

What is Split-Up?

In spin-off and split-off, shareholders exchange or take shares from the newly made company. In both cases, parent companies survive and give birth to new companies. But in a split-up, a parent company breaks into two or more than two companies. After this, there is no name of the parent company.

An example of this is the split-up of Universal Technologies into three other companies: Universal Technologies, Carrier, and Otis Elevator Company. The newly created company has a different identity unrelated to its parent companies. 

Sometimes, the government also forces some companies to split up, and that’s why police are demanding the split-up of renowned companies like Google, Apple, and Amazon.

What is Carve-Out?

Unlike the other three, in the carve-out, shares are not given to the shareholders; instead, they get sold through Initial Public Offerings (IPO). When a new company gets created from the parent company, it sells its shares to all the normal people. This means that the IPO is available for everyone to buy.

The most prominent example of carve-out is the Las Vegas Sands. In 2009, to raise a fund of more than $3 billion, Las Vegas Sands carved out its new entity, Sands China. According to a report, most companies carve out to raise funds and capital for the company.

Main Difference Between Spin-Off, Split-Off, Split-Up, and Carve-Out

  1. Shareholders get new shares in Spin-off. Shareholders exchange their shares in Split-off. Shareholders can exchange and maintain their shares in Split-up. On the other hand, shareholders can not buy or exchange shares in carve-out.
  2. The shares of a spin-off, split-off, split-up are unavailable for everyone. On the other hand, shares are available for everyone in carve-out.
  3. Shareholders can buy and exchange shares in a spin-off, split-off, split-up. On the other hand, under carve-out, they can not do so.

Conclusion

To sell and own shares in any company, it was important to get familiar with common terms like a spin-off, split-off, split-up, and carve-out.

References

  1. https://academic.oup.com/spp/article-abstract/21/2/99/1652742
  2. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/ambank76&section=20
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