HOW DOES A PUBLIC COMPANY EFFECT A SPIN-OFF?
Houston Corporate Lawyer
A spin-off is when a public company decides to distribute a subsidiary
or a division of its company to its shareholders. This can be done to
raise money or to separate a non-core business.
Spin-offs are an important part of today’s corporate world. For instance,
DuPont recently spun off its performance chemicals business into a separately
traded company in order to focus DuPont on higher-margin products.
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A spin-off can be accomplished by filing a registration statement with
the Securities and Exchange Commission. The type of registration statement
filed will depend on the transaction. The parent company can decide to
retain some of the shares or dispose of all of its holding in the spin-off.
There are three types of spin-offs which can be accomplished, depending
on the objectives of the company:
The parent sells shares of the spun-off subsidiary. In this case, the spin-off works exactly
like a pure sale of the business; however, the sale is to the public via
an initial public offering.
The subsidiary sells shares to the public and keeps the money. In this case, the seller of
the shares is the subsidiary, and the funds raised in the offering stay
with the subsidiary for business purposes.
The parent distributes the shares to its shareholders without consideration. This is actually
the most common method of achieving a spin-off.
There are several important considerations when deciding whether and how
to effect a spin-off, such as management of the parent and subsidiary,
the assets and liabilities to be allocated to each company, the nature
of each company’s business going forward, and tax issues.
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If your public company is considering a spin-off transaction, contact the
trusted Houston corporate securities lawyer at Whitley LLP Attorneys at
Law today. We will work with you to ensure that the spin-off achieves
your business objectives.
Call today and request a consultation to discuss your unique situation—(888) 252-8277.