Creating Superior Value Through Spin-Offs

The number of spin-offs has increased dramatically in recent years. In 2015, companies closed 28 major deals worth a total valuation of $133 billion. Among the largest were Gannett’s spin-off of its publishing business, eBay’s spin-off of PayPal, and Hewlett-Packard’s spin-off of its PC and printer business. Unlike selling a business to another company for cash or stock, or floating all or part of a business on the public-equity markets, a spin-off distributes shares in the new company directly to the initiating company’s shareholders. Like any divestiture, a spin-off allows a company to increase its focus on the core, reduce management distraction, and improve the margin, growth profile, and valuation multiple of its remaining lines of business. Because spin-offs don’t generate any cash, however, they also have powerful tax advantages in the U.S. legal system, compared with other types of divestitures.