Spin Off

5 Key excerpts on "Spin Off"

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  International Business Strategy

  Perspectives on Implementation in Emerging Markets

  • S. Raghunath, Elizabeth L. Rose, S. Raghunath, Elizabeth L. Rose(Authors)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The large number of Indian spin-offs completed in recent years provides us with an opportunity to examine whether the conclusion that spin-offs tend to create value applies primarily to US firms, or whether this relationship is more broadly applicable, including to emerging markets such as India. In the academic literature, a spin-off has been defined as “when the firm distributes all of the common stock it owns in a controlled subsidiary to its existing shareholders, thereby creating a separate, publicly-traded company” (Rosenfeld, 1984: 1437). In the management literature, spin- offs are generally seen as the formation of new firms, wherein the newly formed firm is totally separated from the parent organization, in terms of control, risks, benefits, and management; sometimes, new economic activity is also created around it by way of entering new markets or busi- nesses. In other words, an existing division or business unit is separated from the parent organization; the ownership and control are placed in the hands of new owners; and the management, risk, and rewards are trans- ferred from the erstwhile management to a new set of individuals. In a way, we can thus view the spin-off as an activity wherein a large organiza- tion is restructured and made leaner. A number of studies of US firms find evidence of long-term superior performance for both spin-offs and their parents (e.g., Cusatis et al., 1993; Desai & Jain, 1999; Rovetta, 2006); parents and subsidiaries involved in spin-off activity tend to outperform matched firms. An interesting ques- tion that arises is whether spin-offs, in general, are really associated with positive long-term excess returns or whether the US results are due to the unique structure of its capital markets and related institutions, which differ from other first world markets, as well as emerging markets such as India.

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  Maximizing Corporate Value through Mergers and Acquisitions

  A Strategic Growth Guide

  • Patrick A. Gaughan(Author)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  core business as well as the non-core part, which is what will be spun off.

  The spunoff entity then becomes a separate business that is independent of the parent company. Shareholders of the parent are also shareholders of the spunoff business, but the two companies usually operate independently. There is a pro-rata distribution to the parent company's shareholders, which is usually done through a dividend. Because the spinoff is done through the payment of a dividend, the courts usually regard dividend payments as part of the normal responsibilities of the board of directors; thus shareholder approval is usually not required unless the amount of assets being spun off is substantially the bulk of the company's assets.

  In a spinoff, the shareholders involved in the transaction may stay the same as the original company, whereas with an equity carve out, a new set of shareholders is established. However, there are other variations that can be pursued such as a sponsored spinoff. In a sponsored spinoff, an outside party acquires an interest in a spunoff entity. Often, this is done by giving the sponsor an incentive in the form of a discount on the price of the shares.

  The debt of the overall company is allocated between the remaining parent company and the spunoff entity. Usually, this is done in relation to the respective post-transaction sizes of the respective businesses.

  Spinoffs are usually easier to implement and also less expensive compared to equity carve outs. For example, one study found that the direct costs of carve outs (investment banking and exchange fees) were 3 times greater than spinoffs.4 Spinoffs are also much less time consuming to implement than equity carve outs.

  If the business that is being spun off is well integrated into the parent company, then it will usually require much more work to create a distinct and separate business to Spin Off. If, however, the business was a prior acquisition that was not well integrated into the parent company, then the job may be easier.

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  Industry 4.0

  Impact on Intelligent Logistics and Manufacturing

  • Tamás Bányai, Antonella Petrilloand Fabio De Felice, Tamás Bányai, Antonella Petrilloand Fabio De Felice(Authors)
  • 2020(Publication Date)
  • IntechOpen

    (Publisher)

  Another important feature is that the university still remains as a co-owner in a given spin-off company but that company can flexibly and freely create your own unique intellectual prop -erty (IP). This is confirmed by the authors in [22], who define the university spin-offs as “com -panies established by one or several university employees who left the university in order to establish legally and technically independent entity which is supported by the university at least in the initial phase of development.” The term spin-off is also described as an innovative company established for the use and further development of academic IP. They state that the definition of spin-off within academic conditions reflects various differences in the perception of requirements related to IP commercialization as well as differences in maturity of business environment in different countries. As we have found, in order to define the concept of spin-offs, it is possible to find many different criteria and approaches to their categorization. As stated in [15 ], it is possible to identify 14 common elements or categorization criteria of dif -ferent definition and 46 spin-offs categories. In Table 1 , we assume the results of conceptual categorization of spin-offs based on the ways of establishment of spin-off with relation to the founders or networking creation.

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  Managing Innovation

  Integrating Technological, Market and Organizational Change

  • Joe Tidd, John R. Bessant(Authors)
  • 2020(Publication Date)
  • Wiley

    (Publisher)

  It is critical to identify the most desirable individuals for such an operation, assessed in terms of their technical ability 476 CHAPTER 12 Promoting Entrepreneurship and New Ventures and personal characteristics. It is also important to assess the effect of these individuals leaving the mainstream development operations, as the capability of the parent’s operations could be easily damaged. NURTURED DIVESTMENT Nurtured divestment is appropriate where an activity is not critical to the mainstream business. The product or service has most likely evolved from the mainstream, and while supporting these operations, it is not essential for strategic control. The design option provides a way for the cor-porate to release responsibility for a particular business area. External markets may be built up prior to separation, giving time to identify which employees should be retained by the corporate and providing a period of acclimatization for the venture. The parent may or may not retain some ownership. COMPLETE SPIN-OFF No ownership is retained by the parent corporation in the case of a complete spin-off. This is essentially a divest option, where the corporation wants to pass over total responsibility for activity, commercially and administratively. This may be due to strategic unrelatedness or stra-tegic redundancy, as a consequence of changing corporate strategic focus. A complete spin-off allows the parent to realize the hidden value of the venture and allows senior management of the parent to focus on its main business.

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  Managerial Issues in International Business

  • F. Fai, E. Morgan, F. Fai, E. Morgan(Authors)
  • 2006(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  ‘Entrepreneurial spin-offs’ are those new firms, typically also small, that are created by employees who 70 Managerial Issues in International Business identify an opportunity for brokerage between two separate firms or a new technological or market opportunity and thus exit the parent firm to create their own business (Garvin, 1983; Klepper, 2001; Phillips, 2002). This chapter does not address the causes of entrepreneurial activity or why some employees decide to exit the parent firm (see Cooper, 1985; Brittain and Freeman, 1986; Wiggins, 1995; Klepper, 2001 for a review of these motives). However, it does depart from the stylized fact that each exit corresponds to an opportunity detected for an entrepreneurial endeavour. Existing studies on spin-offs and new firm formation found that in some instances employees exit their parent firm and risk setting up their own business either with the expectation of a greater financial reward or due to dissatisfaction in the workplace, perhaps induced by the parent’s inability to exploit an emerging opportunity (Cooper, 1985; Klepper, 2001; Phillips, 2002). This chapter also does not support the reductionist approach suggested in studies that view entrepreneurial spin-offs as a ‘brain drain’ – it is fairly clear across many European clusters that spin-offs do not all cut the ties to their parent; it would destroy the social fabric that underlies social networks in the cluster if they did. Multiple factors may account for some regions favouring entrepreneurship (Aldrich and Wiedenmayer, 1993) and being more innovative than others. The cluster’s environment has specific social, cultural, relational, infrastructural, institutional, economic, financial and technological idiosyncrasies that are hard to generalize. Entrepreneurial activity is likely to be intensive in clusters because of the relative abundance of specialized institutions as well as public and private agents (Porter, 2000).

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