Corporate Split: Advantage of Subsidiary Businesses

BANGALORE: A corporate split up or spin-off refers to the planned action taken by the company to be divided into various sections for doing independent business including assets, employees or any kind of property involved in the parent company. The main reason behind the spin-offs is largely governed by attaining maturities and thus companies are seeking better appraisal by getting listed as separate companies.

Many of the companies have moved on for spinning their subsidiaries, namely Gulf Oil and Marico, which have

According to Ajay Saraf, executive director, ICICI Securities, said “Companies choose to spin off their subsidiaries when the latter aren't a strategic fit with core activity. The business is not synergetic with the main business of the company in some of the recent cases, it has been seen that they are entirely different businesses, which operate in different ways and are valued differently,” reports Rediff.com

There is a clear explanation made with regard to the dividend shares at the time of spinning of a company. Even the shareholders will get the equivalent shares in the new company; however the shareholders can purchase the shares from either of the companies thereafter.

According to The Economist, another driving force of the proliferation of spin-offs is what it calls the “conglomerate discount”—i.e., the fact that "stockmarkets value a diversified group at less than the sum of its parts."

The foremost advantage of separation lies within the fact that it’s always easier to raise funds for different businesses, moreover it creates more values for the investors.

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