Submitted to:

Dr. Pushpendra Singh

Submitted by:
Suraj kumar
MBA-FBE
2K19/FMBA/09
What Is a Spinoff?
When a company creates a new independent company by selling or distributing new shares of
its existing business, this is called a spinoff. A spinoff is a type of divestiture. A company
creates a spinoff expecting that it will be worth more as an independent entity.

In case of spin off,

Parent company supports new company in all operations like initial establishments,
market penetrations etc. for better opportunities of exploration, generating revenues and
increasing marketing capitalizing.

KEY TAKEAWAYS :-

 A spinoff is the creation of an independent company through the sale or distribution of

new shares of an existing business or division of a parent company.
 The spun-off companies are expected to be worth more as independent entities than as
parts of a larger business.
 When a corporation spins off a business unit that has its own management structure, it
sets it up as an independent company under a renamed business entity.

Spinoff :-
Understanding Spinoffs
A parent company will spin off part of its business if it expects that it will be lucrative to do so.
The spin off will have a separate management structure and a new name, but it will retain the
same assets, intellectual property, and human resources. The parent company will continue to
provide financial and technological support in most cases.
A spinoff may occur for various reasons. A company may conduct a spinoff so it can focus its
resources and better manage the division that has more long-term potential. Businesses wishing
to streamline their operations often sell less productive or unrelated subsidiary businesses as
spinoffs.
For example, a company might spin off one of its mature business units that are experiencing
little or no growth so it can focus on a product or service with higher growth prospects.
Alternatively, if a portion of the business is headed in a different direction and has different
strategic priorities from the parent company, it may be spun off so it can unlock value as an
independent operation. A company may also separate a business unit into its own entity if it has
been looking for a buyer to acquire it but failed to find one. For example, the offers to purchase
the unit may be unattractive, and the parent company might realize that it can provide more
value to its shareholders by spinning off that unit.

Practical example of spin-off:-

ByteDance Ltd. is a Chinese internet technology company of China which
introduces “Toutiao” ("Headlines") as it’s core product. It is a content platform in China and
worldwide. Toutiao started out as a news recommendation engine and gradually evolved into a
platform delivering content in a variety of formats, such as texts, images, question-and-answer
posts, microblogs, and videos. Toutiao offers its users personalized information feeds that are
powered by machine learning algorithms. A content feed is updated based on what the machine
learns about a user's reading preferences but gradually Bytedance Ltd. Introduces it’s new
product as a spin-off with name “Xigua Video” which was actually Toutiao Video, which was
later rebranded as Xigua Video (also known as Watermelon Video). Xigua Video was a short
form video platform that hosted a variety of video clips that were on average 2–5 minutes long.
The platform has since expanded to long form video.

What Is a Spinout??
A spinout is a type of corporate realignment involving the separation of a division to form a
new independent corporation. The spinout company takes with it the operations of the segment
and associated assets and liabilities. The parent company is required by the SEC to detail in
which contains a substantial information letter or narrative that outlines the rationale for the
spinout, strengths, and weaknesses of the new company, and the outlook of its industry. A
spinout, which is typically tax-free to shareholders, can take up to six months to complete.
Although spinouts are typically a positive sign for a company, investors might not like what
remains at the parent company after the spinout and sell its stock.
In case of “spin-out”
Spin out entity either becomes competitive to its parent company or sometime becomes
supplier of spin out entity.

Understanding Spin Outs

Spinouts can occur for a variety of reasons. The parent company might want to unlock the value
of the embedded division, which might be growing at a different pace than the overall company.
Usually, a trapped or constrained segment that's growing faster than its parent would be better
off as an independent company.
A spinout allows the division being spun off to raise its own capital through issuing equity
shares in the new company or debt in the form of bonds to fund the company's growth. The
financing for raising capital might not be possible with the combined entity, but by separating
out the profitable division, the spun-off division has a greater chance of attracting investors and
banks.
Spinouts can also help the parent company by allowing it to focus on its core operations without
the diversion of resources to a segment that could have different needs in various aspects
including operations management, marketing, finance, and human resources.
Also, the division being spun out could have been established to create an ancillary service such
as software or some needed technology. While profitable, the technology division might not fit
in with the industry of the parent company. As a result, it might be better to split them since the
business plans and strategies of the parent company and the division might not align with each
other.
A spinout could also occur if the division is not as profitable as the parent company. By creating
a separate company, it removes the distraction of the struggling division. Also, a spinout could
allow the management to sell off assets or look for a merger or buyout of the new company.
Parent companies often provide support for their spinouts by retaining equity in them or signing
contractual relationships for the supply of products or services. In many cases, the management
team of the spun out firm is drawn from the parent company as well.
KEY TAKEAWAYS

 A spinout is a type of corporate realignment involving the separation of a division to

form a new independent corporation.
 The spinout company takes with it the operations of the segment and associated assets
and liabilities.
 A spinout allows the division being spun off to raise its own capital through issuing stock
and operate its own business strategy.

Some Drawbacks of a Spinout

Investors are generally in favor of a spinout, as it makes business sense for a segment that has
different needs and growth prospects to go it alone. The sum of the separated parts is usually
greater than the whole for investors, as valuations over time have demonstrated.
However, the spinout process can be costly in terms of management time and distraction for a
number of months. Management's focus may shift from running the company to executing the
spin out. Also, there can be significant transaction expenses to plan and complete a spinout.
Of course, there's no guarantee the spun out division will be profitable by itself. A spun-out
company could incur losses or poor earnings without the help of the parent. Conversely,
removing a profitable division through spinning out, might leave the parent company with less
revenue and vulnerable to poor financial performance.

Examples of Spin Outs

Spin outs are common, and investors have good reason to push for them. There are many
notable spinouts including Mead Johnson Nutrition, which was spun out of Bristol Myers
Squibb in 2009, Zoetis was spun out of Pfizer in 2013, and Ferrari was spun out of Fiat Chrysler
in 2016.

Practical example of spin-out:-

BBK Electronics Corporation is a Chinese multinational firm specializing in electronics. It also
markets smartphones under its various spin out products like Realme, Oppo,Vivo,
and OnePlus brands. It also markets Blu-ray players, headphones, headphone amplifiers and
smartwatches under Oppo Digital brand.
In March 2019, BBK Electronics announced iQOO as its newest member and is also a
performance sub-brand. In Q1 2017, BBK Electronics shipped 56.7 million smartphones,
surpassing both Huawei and Apple to become the 2nd largest smartphone manufacturer in the
world, just behind Samsung.

Starburst :-
Starburst is that terminology in which a company focuses over its best product by promoting it
as a star product by decreasing effects for other products.
e.g. Parle did with frooti though sold their other products like coco cola etc.

Practical example of starburst:-

Bluehole, Inc. (known as Bluehole Studio, Inc. until 22 April 2015) is a South Korean video
game developer based in the Bundang-gu district of Seongnam. Founded by Chang Byung-gyu,
in Seoul, in March 2007, the company is best known for developing TERA (2011)
and PlayerUnknown's Battlegrounds (2017), the latter through its PUBG
Corporation subsidiary. In November 2018, Bluehole organised itself under a newly founded
parent company, Krafton Game Union.