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A spin-off is happens when a division or section of business of a company is separated from its parent company (=a company that owns another company), thereby forming a new, independent company. A typical spin-off involves the parent company forming a subsidiary (=a company that is owned by another company), if the line of business or division is not already a subsidiary. The parent then transfers relevant assets, such as intellectual property, to the subsidiary, and provides shares in the subsidiary to the shareholders of the parent company. The shareholders can then buy and sell shares in the spun-off company without this having any effect on the original parent company.

There could be several reasons for a spin-off. A company which has a number of businesses may wish to remove a division which is less productive than the others. Or perhaps the business no longer fits within the company structure going forward. Alternatively, the value of a business may increase if it is independently managed and seen as more attractive to outside investors. In any of these scenarios, a spin-off is a good way to achieve the desired objective.

Spin-offs are a good way for conglomerates to remove unwanted businesses. An infamous example is when media conglomerate Time Warner spun off its entire AOL internet business when it became clear that the merger with AOL, which had taken place some years earlier, had not resulted in the success promised. The remaining company, without the internet business, was then free to focus on television, film and publishing content.