What Is a Split-Off?

A split-off is a corporate reorganization method in which a parent company divests a business unit using specific structured terms. There can be several methods for structuring a divestiture. 澳洲幸运5官方开奖结果体彩网:Split-offs, sp𝓀inoffs, and carveouts ไare a few options, each with its own structuring.

In a split-off, the parent company offers shareholders the option to keep their current shares or exchange them for shares of the divesting company. Shares outsta🥀nding are not proportioned on a pro rata basis like in other divestitures. In some splꦚit-offs, the parent company may choose to offer a premium for the exchange of shares to promote interest in shares of the new company.

Understanding Split-Offs

A split-off is a type of business reorganization method that is fueled by the same motivations of all divestitures in general. The maiಌn difference in a split off vs. other divestiture methods is the distribut꧂ion of shares.

Businesses enacting a 澳洲幸运5官方开奖结果体彩网:split-off must generally follow Internal Revenue practices for a Type D reorganization pursuant to Internal Revenue Code, Sections 368 and 355. Following these codes allow for a tax-free transaction primarily because shares are exchanged which is a tax-free event. In general, a Type D split-off also involves the transferring of assets from the parꦆent company to the newly organized company.

A split-off includes the option for current shareholders of the parent company to exchange their sh🃏ares for new shares in the new company. Shareholders do not have to exchange any shares since there is no proportional pro rata share exchange involved. Oftentimes, the parent comꦑpany will offer a premium in the exchange of current shares to the newly organized company’s shares to create interest and offer an incentive in the share exchange.

Example of a Split-Off

In 2023, Johnson & Johnson (JNJ) announced the split-off of its Consumer Health business, which would thereafter be a separate public company called Kenvue. According to CEO Joaquin Duato, the separation "further sharpens Johnson & Johnson's focus" on pharmaceuticals and medical technology, while bringing greater value to shareholders.

Under the terms of the split-off, investors were given the option of trading "some, all, or none of their shares" of JNJ common stock with Kenvue (KVUE) common stock. Participating JNJ shareholders received a 7% discount on the exchange, allowing them to receive up to 8.0549 shares of Kenvue stock for each share of JNJ stock. The deal was oversubscribed, meaning that not all JNJ shareholders were able to exchange their stock for KVUE shares.

The split-off was preceded by an initial public offering, where about 10% of Kenvue's shares were sold to the public. Net proceeds from the sale were given to Johnson & Johnson in partial consideration for the split-off.

The Bottom Line

A split-off is a type of exit strategy where part of a company is reorganized into a new public company. Shareholders in the old company are given the chance of exchanging their shares for stock in the new company.