Spin-off

Sometimes a company decides one of its businesses would be worth more, or run better, standing entirely on its own rather than as part of a larger group.

A spin-off is how that separation happens. The business is carved out into a new company, and the parent's existing shareholders are given shares in the new company as well — nothing is sold and no cash changes hands.

The workbook: "A spin-off occurs when a company carves one or more of its existing businesses on to a separate company. In case of a spin-off, the shareholders on the record date will be eligible to receive shares in the new company in proportion to the shares they held in the parent company."

Its own real example: in April 2018, Adani Enterprises spun off its renewable energy business into Adani Green Energy Limited, giving shareholders new shares in a 761:1000 ratio. Earlier, in June 2015, Adani Enterprises had similarly spun off its ports and its power and transmission businesses into two further separate companies.

Using the workbook's own Adani Enterprises example: a shareholder holding 1,000 Adani Enterprises shares on the April 2018 record date received 761 shares of the newly listed Adani Green Energy Limited, in the workbook's stated 761:1000 ratio.

Shareholder with 5,000 Adani Enterprises shares:
5,000 × 761 ÷ 1,000 = 3,805 shares of Adani Green Energy

That shareholder kept all 5,000 original Adani Enterprises shares and additionally received 3,805 shares in the new company — nothing was given up in the transaction.

Chapter 9.8 (Demerger/Spin-off) uses this exact Adani Enterprises case study. Expect a question computing new shares received under a stated spin-off ratio, or one testing that spin-off shareholders keep their original holding as well.

• A spin-off gives shareholders MORE shares, in a new company, without taking away the original ones. This is different from a buyback (shares are cancelled) or a cash acquisition (shares are replaced by cash) — no value is removed from the shareholder in a spin-off.