A corporate spin-off, also known as a spin-out or a starburst, refers to a type of corporate action where a company "splits off" sections as a separate business.
- U.S. Securities and Exchange Commission 1.1
- Other definitions 1.2
Reasons for spin-offs 2
- Conglomerate discount 2.1
- Academia 3.1
- Mirror companies 3.2
- See also 4
- References 5
Spin-offs are divisions of companies or organizations that then become independent businesses with assets, employees, intellectual property, technology, or existing products that are taken from the parent company. Shareholders of the parent company receive equivalent shares in the new company in order to compensate for the loss of equity in the original stocks. However, shareholders may then buy and sell stocks from either company independently; this potentially makes investment in the companies more attractive, as potential share purchasers can invest narrowly in the portion of the business they think will have the most growth.
In contrast, divestment can also sever one business from another, but the assets are sold off rather than retained under a renamed corporate entity.
Many times the
- EIRMA (2003) "Innovation Through Spinning In and Out", Research Technology Management, Vol. 46, 63-64.
- Rohrbeck, R., Döhler M. and H. M. Arnold (2009): "Creating growth with externalization of R&D results - the spin-along approach" Global Business and Organizational Excellence, 28, 44-51.
- Rohrbeck, R., Hölzle K. and H. G. Gemünden (2009): "Opening up for competitive advantage: How Deutsche Telekom creates an open innovation ecosystem", R&D Management, Vol. 39, S. 420-430.
- Graham Richards (2009). Spin-Outs: Creating Businesses from University Intellectual Property. Harriman House. ISBN 978-1-905641-98-7
- "About Isis Innovation", at University of Oxford
In the United States, a mirror company may be formed tax-free by complying with the requirements of 
The London Stock Exchange's Alternative Investment Market is considered the best market for new ventures as the market is large and has many international companies listed. Also, the time and effort required to achieve a listing is much shorter than many other markets. It typically costs at least $1 million to form a public company and list on a stock exchange.
The advantages are the original company sells a shell for much more than it cost to create and the shareholders of the public company receive shares in a new operating business. For the operating company it is much faster and possibly also cheaper than the normal requirements of complying with the listing requirements of most exchanges.
It works by an existing public company issuing a bonus share at a 1-for-1 rate in the new company. This new company is then sold to another company that does not want to go through the complex and expensive process of issuing a prospectus. The company that purchases the "shell" then does a reverse takeover, to transfer an operating business into the new company. This is often called a "backdoor listing".
- Since 1997, Oxford University's Isis Innovation has helped create more than 70 spin-out companies, and now, on average, every two months a new company is spun out of "academic research generated within and owned by the University of Oxford". Over £266 million in external investment has been raised by Isis spin-out companies since 2000, and five are currently listed on the London Stock Exchange's Alternative Investment Market (AIM).
An example of companies created by technology transfer or licensing:
- Shugart Associates was a spin-out of IBM
- Fairchild Semiconductor was a spin-out of Shockley Transistor; the founders were Shockley's "traitorous eight"
- Intel was in turn a spin-out of Fairchild, as were a large number of firms in the semiconductor industry
Examples following the second definition of spin-out:
- Guidant was spun off from Eli Lilly and Company in 1994, formed from Lilly's Medical Devices and Diagnostics Division.
- Agilent Technologies spun off from Hewlett-Packard in 1999, formed from HP's former test-and-measurement equipment division.
- Cenovus Energy was spun off from Encana Corporation in 2009.
- Ocean Rig UDW Inc was spun off from Dryships Inc in September 2011.
- AOL was a Time Warner spin-off; this effectively was a demerger, as AOL had previously merged into Time Warner.
- DreamWorks Animation was spun off from DreamWorks Studios in 2004.
- Nuage Networks was spun off from Alcatel Lucent in 2012
- News Corporation's publishing operations (and its broadcasting operations in Australia) were spun off as News Corp in 2013. The previous News Corporation's remaining media properties were retained under the name 21st Century Fox.
Some examples of spin-offs (according to the SEC definition):
According to The Economist, another driving force of the proliferation of spin-offs is what it calls the "conglomerate discount" — that "stockmarkets value a diversified group at less than the sum of its parts".
One of the main reasons for what The Economist has dubbed the 2011 "starburst revival" is that "companies seeking buyers for parts of their business are not getting good offers from other firms, or from private equity". For example, Foster's Group, an Australian beverage company, was prepared to sell its wine business. but due to the lack of a decent offer, it decided to spin off the wine business, which is now called Treasury Wine Estates.
Reasons for spin-offs
A second definition of a spin-out is a firm formed when an employee or group of employees leaves an existing entity to form an independent start-up firm. The prior employer can be a firm, a university, or another organization. Spin-outs typically operate at technological diffusion in high-tech industries.
A company not considered a spin-off in the SEC's definition (but considered by the SEC as a technology transfer or licensing of technology to the new company) may also be called a spin-off in common usage.
The United States Securities and Exchange Commission's definition of "spin-off" is more precise. Spin-offs occur when the equity owners of the parent company receive equity stakes in the newly spun off company. For example, when Agilent Technologies was spun off from Hewlett-Packard in 1999, the stock holders of HP received Agilent stock.
U.S. Securities and Exchange Commission
All the support from the parent company is provided with the explicit purpose of helping the spin-off grow.
- Investing equity in the new firm,
- Being the first customer of the spin-off that helps create cash flow
- Providing incubation space (desk, chairs, phones, Internet access, etc.)
- Providing legal, finance, or technology services
In most cases, the parent company or organization offers support doing one or more of the following: