How Stock Spinoffs Work — And How They've Performed

In theory, stock spinoffs should reward investors, but performance is mixed.

digital rendition of two men holding sign that reads "company" and has been torn in half
(Image credit: Getty Images)

Anyone who has watched Better Call Saul or Frasier is familiar with the spinoff concept, in which characters from an existing series branch off in a new show with a different story line. It works sort of the same way in corporate America with stock spinoffs, when firms split off a part of their business into a new, publicly traded company, usually via a tax-free distribution of the stock to shareholders of the original firm. The idea: Capitalize on a sum-of-the parts strategy, in which an undervalued business unlocks value under a new, simplified structure. 

Stock spinoffs had a strong 2022, although momentum has slowed some this year. Last year, U.S. companies announced 44 spinoffs and completed 20, totaling $61 billion in market value, according to Goldman Sachs. So far this year, through mid July, nine U.S. spinoffs have been completed, according to financial information provider Dealogic

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.