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Why do spin-offs happen and what are the advantages and disadvantages?

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First of all let's define spin-offs. Spin-off is simply the separation of a subsidiary or division of a corporation from the parent company by issuing shares in a new corporate entity. The shareowners in the parent company receive shares in the new company in proportion to their original holding and the total value remains approximately the same.

Why do spin-offs happen?
Spin-off is simply a way for companies to find private equity buyers for non-core operations. During the times of tight financing, finding a buyer for a non-core line of business presents real challenges for a company. A spin-off may be an attractive structure to facilitate a private equity fund's interest in such an investment. Unlike a cash sale of a subsidiary ...

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