Spin-offs have been proven to be a source of significant market outperformance for investors. Various studies have shown that on average, spin-offs outperform market indexes, resulting in higher aggregate value for the constituent pieces. The Bloomberg Spin-Off Index, for example, has been up 9.1% year-to-date compared to the S&P 500, which has only seen a 2.6% increase.
There are different types of spin-offs, including spin-offs, carve-outs, and split-offs. Spin-offs involve a parent company distributing shares of a subsidiary to its shareholders, creating two independent companies. Carve-outs occur when a parent company sells a portion or all of the shares of a subsidiary through an initial public offering (IPO), bringing in cash and dispersing assets. Split-offs require shareholders to choose between the new company and the parent, with the parent offering shares in the subsidiary in exchange for shares in the parent company.
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