A stock spinoff occurs when a publicly traded company splits into two companies.
Let’s walk through an example to see what that really means:
Example: ConocoPhillips Spinning off Phillips 66
In 2011, ConocoPhillips announced that it would be splitting its company in two. The parent company would continue to own the upstream assets and continue to focus on drilling oil and gas wells.
The spinoff would be named “Phillips 66” and would own the company’s downstream assets. It would continue to focus on the pipelines and refining business.
Why did ConocoPhillips management decide to split up the company?
In the press release announcing the spinoff, ConocoPhillips CEO said the following:
“Consistent with our strategy to create industry-leading shareholder value, we have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies,” said Jim Mulva, chairman and chief executive officer. “Both companies will continue to benefit from the size and scale of their significant high-quality asset bases and free cash flow generation, allowing them to invest and create shareholder value in a changing environment.”
In other words, management believed the company would be more valuable as two separate independent companies than as one integrated company.
Mechanics of the spinoff:
On the official spinoff date (May 1, 2012) ConocoPhillips shareholders would receive 1 share of Phillips 66 for every 2 shares of ConocoPhillips shares that they owned.
As an example, if a ConocoPhillips shareholder owned 100 shares of the stock, she would receive 50 shares of Phillips 66. They would just appear in her brokerage account and she could hold on to them or sell them.
How did Phillips 66 perform? In short, very well. Check out the chart below:
Additional information on Spinoffs
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