The Skinny on Spin-Offs

In theory, corporate spin-offs should reward investors, but performance is mixed.

- ANNE KATES SMITH

ANYONE who has watched Better Call Saul or Frasier is familiar with the spin-off concept, in which characters from an existing series branch off in a new show with a different story line. It works sort of the same way in corporate America, when firms split off a part of their business into a new, publicly traded company, usually via a tax-free distribution of the stock to shareholders of the original firm. The idea: Capitalize on a sum-of-the parts strategy, in which an undervalued business unlocks value under a new, simplified structure.

Stock spin-offs had a strong 2022, although momentum has slowed some this year. Last year, U.S. companies announced 44 spin-offs and completed 20, totaling $61 billion in market value, according to Goldman Sachs. So far this year, through mid July, nine U.S. spin-offs have been completed, according to financial information provider Dealogic.