The spin on spinoffs.

• Author: Rock, Robert H.
• Position: Corporate divestitures

Corporate divestitures always have constituted a large pro portion of merger and acquisition activity. Over the past several years, of the approximate 6,000 deals completed annually, nearly 40% have been divestitures. The primary rationale for a divestiture is to focus a company's energies on core businesses that fit its strategic direction.

Once the decision has been made to divest a non-core business, a company generally compares several alternatives, including an outright sale (for cash and/ or stock), a split-off (by way of a share exchange), an equity carve-out (via an IPO), or a spinoff (through a stock dividend). As a method of divesting a major subsidiary, spinoffs have become very popular. In this issue of DIRECTORS & BOARDS, several authors evaluate the purpose and process of spinoffs from a director's perspective.

In a spinoff, the parent company distributes to its stockholders, on a pro rata basis, the shares of a subsidiary, resulting in the creation of a new public company. Recently, several large companies, and many smaller ones, have executed spinoffs, breaking up into several separately traded, more-focused businesses. AT&T, General Motors, Dun & Bradstreet, Minnesota Mining & Manufacturing, Melville, and Baxter International are just a few of the large companies that concluded the sum of their parts is worth more than the whole, at least as valued by the stock market. These breakups have been sold as orderly and inevitable transformations that focus strategic...