What is the difference between Spin-Off, Split-Off, and Split-Up?
This question arose recently with a client who owns shares of General Electric (GE). GE recently declared a corporate action to split-off its ownership of Synchrony Financial (SYF) into a standalone company. Most people are familiar with a spin-off, when a company divests a division/company and issues new shares of an existing company they own. A familiar example is when Pepsico spun off Yum brands (Kentucky Fried Chicken, Pizza Hut, and Taco Bell) in 1997. In a spin-off, the existing shareholders do not relinquish shares, but receive new shares of the spin-off company – so Pepsico shareholders received new shares of Yum brands. In a split-off, the parent company (GE) offers its shareholders the opportunity to exchange some of their GE shares for shares of an existing company (SYF). Spin-Offs and Split-Ups are very similar, but their taxation to the shareholder is different. The final type of corporate action is a Split-Up whereby an existing company is split into two or more companies. In the end, the parent company does not exist. A very well-known split-up happened when the U.S. government forced the split-up of the Bell System in 1982. The result was the creation of the Baby Bells which were seven separate telecommunication companies.
Stay tuned for a more indepth article on the major differences among each type of corporate action, including the tax implications.