You overhear a conversation, standing in a movie line. He says he’s selling all his spin off stocks. Curiously, you ask what is a spin off stock and what is the difference between sell and spin off? Read on, you must hear the answer.
What is the Difference between Sell and Spin Off?
The difference between a sell and spin off is a sell off is the market selling of all or a portion of the shares owned in a company and a spin off is the separating of a division or subsidiary of an existing firm to form a new standalone entity. Here’s how your movie line acquaintance answered the question; What is the difference between a sell and spin off?
Sell Off
- Sell offs are market events when investors collectively sell a large number of stocks or bonds. The increased volume of sold securities results in a security price decrease.
- Deteriorating economic climate, adverse company news, or profit-taking can be sell off catalyzes.
- Sell off price deductions are temporary. If the company’s underlying fundamentals remain strong and unchanged, eventually, the price will rise as investors recognize an undervalued opportunity.
Spin Off
- Spin offs are the event driven strategy of unlocking hidden shareholder value by divesting a portion of a firm to create an independently operating company. The new entity shares are distributed to the original shareholders.
- The new firm, or spin off, operates as a standalone company with its own board, management, assets, liabilities, and employees.
- The spin off is free to concentrate on the vision, mission, and growth initiatives of its core business.
What is the difference between sell and spin off? A sell off decreases stock or bond ownership depressing the security’s price. A spin off creates a new entity and the new shares are distributed to the shareholders of the original firm. These event driven actions have advantages, let’s look:
Sell Off Advantages
- Sell offs provide investors with liquidity from the sales proceeds generated from existing their position. This new capital can be used to shore up reserves or be re-invested in more promising opportunities.
- Sell offs are not always an act of desperation, they are a profit-taking strategy, as well. Again, the proceeds can be used to fund other investments or personal pursuits.
- Loss mitigation through share liquidation (sell off) is an additional advantage of this strategy.
Spin Off Advantages
- The increase in spin off transparency and accountability can attract new investor interest resulting in a potentially higher valuation.
- Spin offs enjoy greater strategy freedom to form sector partnerships, pursue growth acquisitions, mergers, and establish germane capital facilities. Streamline operations begets unlocked shareholder value.
- Spin offs are tax jurisdiction-dependent and can be structured to yield tax efficiencies for the spin off and parent company.
What is the difference between sell and spin off? Sell offs and spin offs differ in application but can be effective accretive and loss mitigation strategies. Each possesses specific advantages that must be included when answering the question: What is a spin off vs a sale?
Read next: What is an Example of a Spin-Off of a Stock?
