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Chapter 17. Other Restructuring > Other Types of Restructuring: Spin-offs, Spli...

Other Types of Restructuring: Spin-offs, Split-offs, Carve-outs, and Letter Stocks

In many cases, mergers and acquisitions are performed with business units which are carved out of existing companies. In some cases, these are companies which were established as separate units within existing and well-established companies, and which are raising money in the private or public markets to continue their operations. In other cases, shares in business units within a company are distributed to the company's shareholders (spin-off). This section briefly reviews the customary spin-off options, starting from spin-offs of subsidiaries through the raising of capital for subsidiary units and ending in the creation of shares whose performance is linked to the performance of units within the company. These mechanisms are commonly used in situations where the restructured business units could be valued in the spin-offs and split-offs.

The U.S. Internal Revenue Code enables companies to distribute to their shareholders assets or shares in a subsidiary (with tax exemption) by using the spin-off and split-off mechanisms. In recent years, transactions of this type usually preceded investment rounds by the subsidiary.


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