Spin-off

A spin-off is when a company separates part of its business into a new, independently traded public company, typically distributing shares of the new entity to existing shareholders of the parent. It is a way to unlock value from a division the market may be undervaluing when bundled inside a larger, more complex company.

Spin-offs have a documented tendency to outperform in the year or two after separation, partly because the new, smaller company gets dedicated management focus and analyst coverage it lacked as a division, and partly because some institutional holders sell the new shares immediately regardless of merit, creating temporary price pressure that can create opportunity.