Here is some explanation for your subject. If it the case ,huge mess occur for the actual investors , If I am wrong ,please correct me!!! I do really hope than I am wrong!
What is a spin-off?
Spin-offs involve talking a part of a company, usually a contained business unit with its own management structure, and creating a completely new company that contains only that part. The original company usually holds quite a bit of the new company’s stock, usually enough to have a significant say in how the company is run. This relationship does not always last forever and spun off companies can become impressive in their own right.
Spun-off companies are also usually listed on exchanges, because shareholders of the parent company receive stock in the new company as well. This is part of the “unlocking shareholder value” part of the deal. It would be a shame if these shares could not be easily moved because the spin-off is not listed on an exchange, or if its value erodes due to being on the OTC instead of a major exchange. Only a few companies can get away with being on the OTC, like Nintendo and Nestle. Even then volume is lower.
It is not rocket science, but a note about the new organization. Companies that do spin-offs usually organize their internal structures in a way that makes this easy. If it is not already that way it will become that way, which is a sign you can look for. It is not always a confirmation, but it’s a good sign. This helps the spun-off company continue along without any real change. Some of the administration might change, but the key players and management chains are in place already. Often they will have their own head, like Freeport-McMoran. The Oil & Gas arm has a CEO, and I’d venture that he is below the CEO of the parent Freeport-McMoran Copper & Gold. Freeport just got its oil and gas unit and there will not be a spin-off, but there may one day be a reason to have it spun off.
Why spin-off?
From a business perspective it should be great to have 20 profitable businesses, but this is from an income and administrative simplicity perspective. You have one board and one big corporate hierarchy. As long as the company does not get bogged down due to its size, more income under one roof should not be a bad thing. However, when you mix in ownership interests and stock it becomes harder.
For private companies you can hire a valuation expert and have all parties agree to a value for their ownership interest. When a company is public market forces, including the psychology is amateurs and unfocused individuals, create the value of a company. When you have a mix of business it can be harder to achieve the true value of a company. When companies are in two separate businesses you need to separate the margins of each and the course of each industry. Then you need to determine what has better long-term potential.
For shareholders it would be better to separate the old dividend business and the high-growth business. That way both can achieve a true market value. Usually the old business will weigh down a new business in terms of valuation.
Conclusion
With a spin-off you receive the stock of another company as a dividend. That gives you position in two companies. A lot of time both the parent and the spin-off can see benefit. Sometimes the old business is not as good, but it is hard to value so the market stays away. There are different classes of investor of a safe dividend play and a growth play. If those are in the same company you might drive both away. By separating them they become pure plays that people can jump into.
Generally, the spin-off does better, because it is the new entrant and was formerly overshadowed by the older larger business. So keep an eye out. By the time spin-offs are announced it might be too late to really get good value, unless you think the spun-off company is going to be a huge winner. You want to try and find these a bit early. As a trader you want the news to hit and then sell to the people piling in, and not wait until the spin-off is completed.
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