What is a spin-off?

A spin-off is the creation of a new company from part of an existing one. It's spun off as an independent business in its own right, and shareholders in the original company will usually be given stock in the new entity.

Where have you heard about spin-offs?

Spin-off are a regular occurrence in the business world as companies restructure their organisations to appease shareholders. Two of the more familiar ones were Expedia's spin-off of TripAdvisor and eBay's spin-off of PayPal.

What you need to know about spin-offs.

There are several reasons for spin-offs. It might be regulatory, with the original firm ordered to break itself up on competition grounds. It could also be prompted by shareholders who believe a separate share listing would unlock more value. Or it might be because a company has grown too big, so splitting off the new entity will allow both the existing and new firms to focus more profitability on their core businesses.

If you hold shares in a company proposing a spin-off, you can either keep any shares on offer in the new company or sell them once trading begins.