What is a spin-off?
A spin-off is when a company hands shares of one of its businesses to its own shareholders. The business becomes a separate public company, and shareholders end up holding shares in both.[S1]
The company giving up the business is the parent. Filings often call the new company "Spinco" until it takes its own name.[S2]
In the SEC staff's words, a parent company "distributes shares of a subsidiary to the parent company's shareholders". A subsidiary is a company the parent owns.[S1]
How is the number of new shares worked out?
The parent sets a distribution ratio and a record date. The record date is the day it checks who owns its shares.
New shares received = parent shares held on the record date × distribution ratio.
Western Digital (WDC) spun off Sandisk on Feb 21, 2025. Sandisk's 10-K for fiscal 2026 sets out the terms:[S3]
In the filing · Form 10-K, fiscal 2026, Item 7, page 43
Distribution ratio One-third of a Sandisk share for each WDC share[S3]
In the filing · Same page
Shares distributed 116,035,464 (80.1% of Sandisk's shares)[S3]
In the filing · Same page
Shares WDC kept at the spin-off 28,827,787 (19.9%)[S3]
Sandisk's information statement said holders would get cash instead of fractional shares.[S2]
Do shareholders pay for the new shares or vote on them?
An SEC staff bulletin of Sept 16, 1997 covers registration under the Securities Act. It says when the new company need not register the spin-off.[S1]
It lists five conditions. Four of them are:[S1]
- Parent shareholders give nothing in return for the new shares.
- The shares go out pro rata to the parent's shareholders.
- The parent gives adequate information about the spin-off and the new company.
- The parent has a valid business purpose, such as letting each management team focus on one business.
The bulletin states the staff's views; it is not an SEC rule.[S1]
Sandisk's information statement told WDC stockholders that no vote was required. They did not need to pay anything or take any action.[S2]
What does the SEC see before the shares go out?
For a new company that is not yet public, adequate information means two things. Shareholders get an information statement, and the company registers its shares under the Exchange Act.[S1]
That registration is usually made on Form 10. It asks for the business, risk factors, financial information and financial statements, much like an annual report.[S8]
Sandisk filed the last amendment to its Form 10 on Jan 27, 2025, with the information statement as Exhibit 99.1.[S2]
How are taxes and cost basis handled?
Sandisk's information statement said the distribution was intended to be tax-free for US federal income tax. Cash paid for fractional shares was the exception.[S2]
It also said a shareholder's cost basis would be split between the two holdings. The split follows their relative market values right after the distribution.[S2]
Cost basis is what was paid for the shares, used later to work out a gain or loss.
IRS Publication 550 says the company should send information on how to split basis. An issuer reports such changes on IRS Form 8937, or posts the form on its website.[S6][S7]
This describes the documents, not anyone's tax position.
Where do you find a spin-off in a 10-K or 10-Q?
The parent. After the spin-off, the business usually moves to "discontinued operations". That means its results are shown apart from the businesses the parent kept.
Dell spun off VMware on Nov 1, 2021. Its 10-K for fiscal 2022 presented VMware's results as discontinued operations.[S4]
They were left out of continuing operations and segment results for every period shown.[S4]
The new company. Sandisk's 10-K opens Item 1 with a section on its separation from WDC. Its statements of operations list "Business separation costs" as an operating expense line.[S3]
To see where these parts sit in an annual report, read how to read a 10-K.
Can a spin-off be combined with a merger?
Yes. Pfizer's 10-K describes its Nov 16, 2020 deal as a "Reverse Morris Trust" transaction.[S5]
Pfizer placed its Upjohn business, which included Lipitor and Viagra, into a subsidiary. It distributed all of that subsidiary's shares to its stockholders.[S5]
Each Pfizer share brought about 0.124079 of a Viatris share. Right after, the Upjohn business combined with Mylan to form Viatris.[S5]
What does a spin-off announcement leave out?
- What the new shares are worth. The ratio sets how many shares each holder gets, not their price.
- A standalone history. Sandisk's years before the spin-off use costs allocated by WDC. Its 10-K says they may not reflect results as a separate company.[S3]
- The old comparisons. Once a business becomes discontinued operations, the parent's earlier periods are restated. They will not match the figures first reported.[S4]
- Ties that remain. Sandisk's information statement lists agreements with WDC, including transition services and tax matters. Dell and VMware signed a commercial framework agreement to continue their commercial relationship.[S2][S4]
Where can you see spin-offs on Cityfort?
The Sandisk page covers a company that was spun off. The Dell and Pfizer pages cover parents that spun businesses off.
Each page links to the filings its figures come from.