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

A business firm or a company holds ownership. This ownership is usually divided among two people or a group of people. This division is called shares of the company.

In financial terms, it is the equity of a company. The people who have ownership of their respective shares are called shareholders.

Spin-Off, Split-Off, Split-Up and Carve-Out are all the terms dedicated to increasing the shareholder value.

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 in Spin-off shares of existing shareholders is transferred to the subsidiary company. Somewhat, similar to this, in Split-off shareholder has an option to choose between existing shares or exchanging. In carve-out shares are transferred about IPO. Contrary to this, in Split-up, two independent companies are established.

The spin-off is a business term used to refer to the transfer of shares. In this, shares are transferred to the existing shareholder. These shares are of the subsidiary company.

Split-off is a business term used to refer to the transfer of shares. Here, the existing shareholder has an option to choose shares between the parent company and the subsidiary company.

Split-Up is a business term used to refer to the end of a business deal between two shares. Here, two independent companies are established from the shares, each shareholder has.

Carve-Out is a business term used to refer to the transfer of shares. Here, shares are transferred to existing shareholders after a round of IPO. IPO stands for Initial Public Offering. Here, some shares are transferred to the public. Rest are shared.

Comparison Table Between Spin-Off, Split-Off, Split-Up and Carve-Out

Parameters Of ComparisonSpin-OffSplit-OffSplit-UpCarve-Out
MeaningSpin-off means transfer of shares to existing shareholders.Split-off means exchanging shares between parent and subsidiary company.Split-up means sharing of shares and establishing two independent companies.Carve-out means transfer of shares after a round of IPO.
Shares transferred toShares are transferred to existing shareholders.Shares are exchanged between parent and subsidiary company.Shares are divided among two independent companies.Some shares are transferred to public and rest are transferred to shareholders.
Used forA new company is formed from existing one.The purpose is to find shares of subsidiary company.Two independent companies are established.Some shares are transferred to public.
BenefitsShareholder is benefited as he gets new shares.Shareholder has an option to choose between two shares.Shareholder becomes part of a new independent company.Shares are transferred to public. This brings exposure to company.
TaxesParent company is tax-free.Parent company is not tax free.Both are independent companies, so they will pay the tax.There is no tax on shares of public.

What is Spin-Off?

The spin-off is a business-based which is used to refer to the transfer of shares. A subsidiary company is established from the parent company.

The shareholders of the main company are provided with shares of the more recent company. The percentage of shares to be transferred depends entirely upon the owner. These could be any x percentage of shares from the parent company.

Shareholders get shares in two companies. There are two types of spin-offs. In one type parent company holds no ownership in the subsidiary company. In other types parent company is eligible to hold a fraction of shares in the new company. For Example, In 2006, Viacom spin-off into Viacom Inc.

What is Split-Off?

Split-off is a business term used to refer to the transfer of shares. Like, spin-off here as well a subsidiary company is established from the parent company.

The shareholders of this parent company have the option to choose between shares of a parent company or the new company. This depends entirely on the shareholder. He is not obliged to have shares of both the companies.

The subsidiary company want shareholders. So, to get shareholders to choose them often their shares are increased than the parent company. Both the companies are obliged to pay taxes as per government rules. For example- Split-Off between Viacom-Blockbuster in 2004.

What is Split-Up?

Split-Up is a financial term dedicating splitting of a company into two independent companies. These two independent companies are in no way connected. Shares of the company can be exchanged. But, any financial transactions or business decisions are independently made. This is usually done primarily for two reasons. The first reason is strategic Advantage. Some companies get an advantage in splitting-up.

This advantage is basically of the shareholders. Let’s say there is a company, a part of which has excellent sales whereas the other one is in the loss. The shareholders of profitable businesses will have more advantages in splitting up.

The other reason can be due to government intervention. The government does this in the public interest. For example, In 2008, Motorola decided to split Up into Motorola Mobility.

What is Carve-Out?

Carve-Out is a financial term used to refer to the transfer of shares. Here the shares of the subsidiary company are transferred to existing shareholders of the parent company but after a round of IPO. IPO stand for Initial Public Offering.

Some hares are transferred to the public that can be bought by the general public. Usually, it is 20 per cent of usual shares. This brings an advantage of no tax over the shared bought by the public. This also brings exposure to the general public.

Often after carve-Out shares are transferred to existing shareholders. It can undergo Split-off or Spin-Off depending upon the use. For Example- GlaxoSmithKline carved out its healthcare business.

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

  1. In Spin-off, there is a transfer of shares to existing shares. Split-off differs slightly. It provides an option to choose between the two shares i.e., existing shares and shares in the newly formed entity. Split up is dividing shares and establishing two independent companies. On the other hand, Carve out means transfer of shares after a round of IPO.
  2. In the spin-off, shares of the subsidiary company are given to existing shareholders. In split-off, there is an option for the existing shareholders to choose between the two shares of parent and subsidiary companies. On the other hand, in split up; shares are exchanged between parent and subsidiary companies. Carve-out some shares are taken by the public and others are given to existing shareholders.
  3. In the spin-off, a new company is formed from the existing company. The purpose of split-off is to find shares of the subsidiary company. After split up two independent companies are created. In Carve out, some shares are transferred to the general public.
  4. In a spin-off, a shareholder gets all the benefits as he gets shares of a new business entity. In a split-off shareholder has opportunities to choose between two shares. In carve, out general public gets the shares which bring exposure to the company.
  5. Parent company in spin-off is tax-free. Split-off does not bring the free tax to the parent company. In carve out, there is no tax on shares belonging to the general public. Whereas in split-up both are independent companies so they both will have to pay tax.

Conclusion

To sum up, everything that has been, stated so far, In split-off shares of subsidiary companies are transferred to the existing shareholders. These shares are of new business entity formed. Spin-off brings the option to shareholders to choose between the shares of an existing company or a subsidiary company.

Split up is the end of the deal band formation of two independent companies. Carveout is the transfer of shares but after a round of IPP.IPO stands for initial public offering. In the IPO round, some shares are transferred to the general public.

References

  1. https://academic.oup.com/icc/article-abstract/11/3/529/1044102
  2. https://www.tandfonline.com/doi/abs/10.1080/16522354.2004.11073422