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Stock Spin-Off Definition, Example and Quiz

A corporate action that can have a material impact on the surviving company's financial statements, stock price, benchmark weight, risk and market characteristics.
  1. Define - Explain Stock Spin-Offs.
  2. Context - Use Stock Spin-Off in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 18, 2021
Even though corporate spin-offs are infrequent, we need to account for them accurately. See below.

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Understanding How Stock Spin-Offs Impact Investors


A Stock Spin-Off is a corporate action where a company separates a business operation and creates a completely new entity, normally as another public company.

Corporate spin-offs are rare, occurring for about 2% to 3% of large US companies annually. Shareholders receive shares of the new entity and the value of their current stock drops by the same amount. Some pricing services account for spin-offs as special dividends.

Synonym: corporate spin-off

For context, let's review an example of a stock spin-off that occurred recently. Effective April 3, 2020, in a fairly complicated transaction, Raytheon and United Technologies merged, terminated Raytheon's stock, took that of United Technologies and renamed it Raytheon Technologies. At the same time they enacted two stock spin-offs of the Otis Worldwide and Carrier Global businesses as separately traded stocks.

The tax treatment of a corporate spin-off can be difficult to reconcile. Details about cost basis can be found at company investor relations website. Spin-off details are provided in 'Current Reports' 8-K filings with the SEC.

Of course, the holder can sell the stock before the spin-off record date to avoid extra tax filings.

In a Sentence

Doc:  Can someone explain the logic for why the Board of Directors would initiate a stock spin-off?
Tom:  Wouldn't it be like a pastry shop selling the best piece of a pie at a higher price than the other slices?


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Video Script

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Click box for answer.

From the time a corporate spin-off is announced, it normally takes how many quarters until completion? | 1 Quarter, 2 Quarters, 3 Quarters or More than 3 Quarters?

More than 3 Quarters

Without being informed about a spin-off, an investor might think the stock dropped materially, as with a stock split? | True or False


Questions or Comments?

Still unclear on Stock Spin-Offs? Check out the Quant 101 Series of 27 tutorials on financial modeling in Excel.

Related Terms

Our trained humans found other terms in the category corporate actions you may find helpful.

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