Split-off

A split-off is a way for a company to separate a subsidiary into its own independent public company, but unlike a spinoff, it requires shareholders to actively choose whether to participate. Parent company shareholders are offered the chance to exchange some or all of their parent shares for shares of the newly separated subsidiary, usually at a modest premium meant to encourage them to take the trade.

Because participation is optional and shares are exchanged rather than simply distributed to everyone, a split-off shrinks the parent's total share count as shareholders swap out of parent stock, while a spinoff leaves the parent's share count unchanged since new shares of the subsidiary are just handed out on top of existing parent shares. This structure lets a parent company reduce its own share count as part of the separation, which can be attractive for capital management purposes alongside the strategic goal of separating the two businesses.

Split-offs are also sometimes used specifically because of how they can be structured for favorable tax treatment on both sides of the transaction. From an investor's perspective, deciding whether to participate in a split-off comes down to whether the offered exchange ratio and premium make the new subsidiary shares more attractive than continuing to hold the parent's stock.