Abstract
Spin-offs, carve-outs, and split-offs are popular ways for parent companies to divest assets, divisions or subsidiaries. All three transactions often result in separate public equity of the divested assets. The main reason for creating publicly traded equity is to increase the value of the parent’s shares by focusing on core businesses. Another motivation is to make the divested assets more visible to market participants, inducing information gathering, and by that increase its value. In this chapter, we discuss the motivation for these transactions and explain their accounting aspects.
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Notes
- 1.
IFRS does not provide guidance on how an entity should measure distributions to its owners (whether cash or non-cash). IAS 1 simply requires an entity to present details of dividends recognized as distribution to owners either in the statement of changes in equity or in the notes to the financial statements. Some guidance on distribution of non-cash assets is provided by IFRIC 17.
- 2.
When a parent makes a distribution to its shareholders but retains control over the spun-off subsidiary, the former recognizes non-controlling interests in its interest held in the latter.
- 3.
In 2011, Marathon Oil Corp spun off Marathon Petroleum and the spun off company increased its dividends by 25% one quarter subsequently. In addition, the spun-off company’s revenues increased 6.5% in 2012. During 2013, Kraft Foods spun off its snack foods division into a company called Mondelez keeping the grocery business. Initially, both companies reported a decline in sales but later on, share prices for both companies increased substantially. Clearly, spin-offs serve as a popular mechanism to increase shareholders’ value by creating more focused businesses.
References
Financial Accounting Standards Board (FASB), ASC 205 Presentation of Financial Statements, as updated lastly in 2012.
Financial Accounting Standards Board (FASB), ASC 321 Investments—Equity Securities, as updated lastly in 2020.
Financial Accounting Standards Board (FASB), ASC 323 Investments—Equity Method and Joint Ventures, as updated lastly in 2020.
Financial Accounting Standards Board (FASB), ASC 810 Consolidation, as updated lastly in 2018.
International Accounting Standards Board (IASB), IAS 1 Presentation of Financial Statements, as amended lastly in 2020.
International Accounting Standards Board (IASB), IAS 28 Investment in Associates and Joint Ventures, as amended lastly in 2017.
International Financial Reporting Interpretations Committee (IFRIC), IFRIC 17 Distribution of Non-cash Assets to Owners, 2008.
International Financial Reporting Interpretations Committee (IFRIC), IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as amended lastly in 2014.
International Accounting Standards Board (IASB), IFRS 9 Financial Instruments, as amended lastly in 2020.
International Accounting Standards Board (IASB), IFRS 10 Consolidated Financial Statements, as amended lastly in 2015.
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Amir, E., Ghitti, M. (2020). Spin-Offs and Equity Carve-Outs. In: Financial Analysis of Mergers and Acquisitions . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-61769-1_4
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DOI: https://doi.org/10.1007/978-3-030-61769-1_4
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