What Is a Split-Up?
A split-up is a financial term describing a corporate action in which a single company splits into two or more independent, separately-run companies. Upon the completion of such events, shares of the original company may be exchanged for shares in one of the new entities at the discretion of shareholders.
Key Takeaways
- A split-up describes the action of a corporation segmenting into two or more separately-run entities.
- Split-ups usually occur because a company wants to slug out different business lines in an effort to maximize efficiency and profitability, or because the government forces this action so as to combat monopolistic practices.
- After split-ups are complete, shares of the original companies may be exchanged for shares in any of the new resulting entities, at the investor's discretion.
Understanding Split-Ups
Companies most often undergo split-ups for for two chief reasons:
Strategic Advantage
Some companies undergo split-ups because they are attempting to strategically revamp their operations. Such companies may have a broad range of discrete business lines--each requiring its own resources, capital financing, and management personnel. For such companies, split-ups may greatly benefit shareholders, because separately managing each segment often maximizes the profits of each entity. Ideally, the combined profits of the separated entities exceed those of the single entity from which they sprang from.
Governmental Mandate
Companies often split-up due to the intervention of the government, which forces such action in an attempt to minimize monopolistic practices. But it has been a long time since the market has seen a pure monopoly break-up, mainly because antitrust laws enacted decades ago have largely squashed monopolies from forming in the first place. Case in point: in the late 1990s, the U.S. Department of Justice (DOJ) sued Microsoft for alleged monopolistic practices. Interestingly, the case ended in a settlement, not a split-up. Some speculators believe that Meta (formerly Facebook), and Google are essentially monopolies that the government must split-up to protect consumers.
A split-up differs from a spin-off, which occurs when a company is created from a division of an existing parent company.
Hewlett-Packard: a Case Study
In November 2015, the Hewlett-Packard Company completed a split-up that resulted in the official formation of two new entities: HP Inc. and Hewlett-Packard Enterprises. The split-up was executed to strategically silo these two groups, because each one focused on different business models. Pointedly: Hewlett-Packard Enterprises markets hardware and software services to large businesses seeking big data storage and cloud computing technology. On the other hand, HP Inc. focusses on manufacturing personal computers, printers, and other devices geared toward small and medium-sized business owners. This split-up ultimately allowed each business entity to more efficiently run its own organizational structure, management team, salesforce,capital allocation strategy, and research and development initiatives.
After the split-up, existing shareholders of the original company and new investors alike were given the opportunity to choose which of the two new entities they wished to obtain shares in. Investors who favored exposure to a perceptively more stable, slower-growing company likely opted for shares in HP Inc., while those who preferred a faster-growing entity that could better compete in the crowded IT space likely leaned toward shares in Hewlett-Packard Enterprises.
FAQs
A split-up is a financial term describing a corporate action in which a single company splits into two or more independent, separately-run companies. Upon the completion of such events, shares of the original company may be exchanged for shares in one of the new entities at the discretion of shareholders.
What does split up mean in a company? ›
a process of reorganizing a corporate structure whereby all the capital stock and assets are exchanged for those of two or more newly established companies, resulting in the liquidation of the parent corporation.
What is a break up in business? ›
the end of a business or a relationship: The sale of the company's real estate and other assets was the first sign of its eventual break-up and closure. (Definition of break something up from the Cambridge Business English Dictionary © Cambridge University Press)
What is it called when you split a business? ›
A split-off is a corporate reorganization method in which a parent company divests a business unit using specific structured terms. There can be several methods for structuring a divestiture. Split-offs, spinoffs, and carveouts are a few options, each with its own structuring.
What does it mean when you split up? ›
If two people split up, they end their relationship or marriage: split up with She split up with her boyfriend last week. See also. split-up informal.
What is the term for split up? ›
break apart, disunify. break up or separate. disaffiliate, disassociate, disjoint, dissociate, disunite, divorce. break away from; stop having a relationship with.
What is an example of a company split? ›
For example, let's say you owned 10 shares of a stock trading at $100. In a 2-for-1 split, the company would give you two shares with a market-adjusted worth of $50 for every one share you own, leaving you with 20 shares.
How do I split up a company? ›
5 lessons for successfully splitting a company
- Establish a separation management office and steering committee. ...
- Assemble the right project team. ...
- Sketch out the big-rocks project plan and manage risk. ...
- Prioritize speed over perfection. ...
- Communicate relentlessly.
Perhaps if the bill was "split" it would mean one bill had several parts. If it was "split up", then perhaps one bill was replaced by several separate bills. "Split up" suggests complete separation into parts, and is often used to mean "end a marriage or relationship", or "separate into groups". Let's split up.
How do you break up with a business? ›
Be sure you know what you want from the break before approaching your business partner and negotiating an agreement.
- Make the Break Quick and Decisively. ...
- Discuss Future Plans. ...
- Discuss Your Plans with an Attorney. ...
- Say Thanks and Be Reasonable. ...
- Protect Your Assets. ...
- Return Company Assets. ...
- Call in the Experts.
By breaking up, leaders can take more risks, move more quickly, and accelerate growth that big conglomerates only dream of. There is a certain entrepreneurial spirit that is re-ignited when a company spins out from a larger parent and is able to move at accelerated speeds to achieve quick success.
How do you explain your break up? ›
Be gentle and honest — but not brutal.
Say why you want to break up. But "honest" doesn't mean "harsh." Don't pick apart the person's “faults” to explain what's not working. Tell them some things you like about them.
What is an example of split up? ›
My parents split up last year. She's split up with her boyfriend. The rock group split up last year.
How to split up a business partnership? ›
Here are five steps you'll want to take.
- Review your partnership agreement. ...
- Approach your partner to discuss the current business situation. ...
- Prepare dissolution papers. ...
- Close all joint accounts and resolve the finances. ...
- Communicate the change to clients.
The three methods at a buyout, continued co-ownership, or liquidation of the company and division of the profit.
- The most common way to divide a business in divorce is a Buyout. ...
- Another method is Continued Co-Ownership, but this requires two people willing to continue to work together harmoniously.
Divorce is done after marriage and is a specific leagal action you take, costing tine, money, and anxiety. Splitting up is more general, and can refer to a divorce or the split between unmarried people, same or opposit gender. It usually is used for people that lived together, but not always.
What is a 70 30 split business? ›
The 70 refers to 70% of the revenue being received by the therapists or healthcare practitioners and the other 30% is received by the practice or owner. The 70/30 split private practice is one of several compensation models employed by group practices where the practice keeps a percentage of the charged fee.
What does it mean when a company splits? ›
A stock split simply divides the existing shares of a company into multiple new shares. Owing to this split, the number of shares increases, and the stock becomes more affordable. It must be noted that the total value of the shares remains the same because the split doesn't add any real value.
What is the difference between a split up and a spin-off? ›
A spin-off distributes shares of the new subsidiary to existing shareholders. A split-off offers shares in the new subsidiary to shareholders but they have to choose between the subsidiary and the parent company.
