Your sister is considering investing in a spin-off and it is in the first of three phases. She asks your opinion. Your blank stare is followed by; what is a stock spin-off and what are the 3 phases of a spin? Keep reading and learn what you need to know.
What are the 3 phases of a Spin?
The 3 phases of a spin are the announcement and planning phase, execution phase, and post-spin off phase. In answering the question, what are the 3 phases of a spin? here are the details:
Announcement and Planning Phase
Announcement - A company decides to divest a portion of the firm to create a separate operating entity, a spin-off. The company issues a press release announcing their corporate action.
Strategic Rationale – The parent company, the firm spinning off the subsidiary, determines the purpose of the division separation. Mutual focus on the core business and operational streamlining are common rationales for unlocking parent company and spin-off shareholder value.
Business Plan Due Diligence – A comprehensive business plan is created. Due diligence is performed to develop the business model, market strategy, and operational structure for the new entity. Regulatory and legal compliance and risk assessments are addressed during this phase.
Execution Phase
Separate Legal Identity – Through establishing an organizational hierarchy and operational and governance possesses, a separate legal identity is formed. The transfer of assets, liabilities, debt obligations, contractual commitments, and employee reassignments can occur.
Regulatory and Stakeholder Approval – Multiple approvals are needed to complete a spin-off transaction. Approvals are sought and must be obtained from regulatory bodies, jurisdictional authorities, creditors, shareholders, and suppliers.
Infrastructure Implementation – Operational infrastructure is necessary for the spin-off to function independently. Compliance procedures, financial reporting, and IT systems are implemented at this phase.
What are the 3 phases of a spin? The effectiveness of the final phase is predicated on the successful execution of the previous phases.
Post-Spin Off Phase
Key Performance Indicators (KPI) Monitoring – The spin-off post-KPIs are monitored to track objectives and projection progress. Oversight ensures identifying early-stage challenges and quicker corrective action.
Capital Structure – The capital structures (debt plus equity) of the parent company and spin-off can now be optimized through individual growth initiatives and dedicated market focus to generate long-term shareholder value.
On-going Relationship Management – The spin-off and the parent firm continue to manage an ongoing relationship related to service and supplier agreements, mutual credit facilities, and shared plant, property, and equipment (PPE).
What are the 3 phases of a spin? The announcement and planning phase, execution phase, and post-spin off phase are the 3 phases of a spin. In addition to these components, the major key to a successful pre-and-post spin off is constant and consistent communication. During the announcement and planning phase, explaining the spin-off rationale to shareholders, clients, regulators, creditors, and suppliers sets the stage for successful future phase execution. Addressing all questions and concerns during the execution phase, ensuring continued stakeholder support, and providing frequent post-spin off updates fosters transparency, accountability and increases trust.
Read next: What Is the Difference Between Sell And Spin Off?
