Company split-up

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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.

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.

A split-up differs from a spin-off, which occurs when a company is created from a division of an existing parent company.