Author(s): N. Stempin, C. Ciccotello
Spinoffs are a value-creating restructuring mechanism where divesture of assets results in a pro-rata distribution of shares in a newly formed company. We analyze two cases and a sample of 135 spinoffs to examine the impacts of spinoff accounting rules. We find that historical financial statements tend to bear little resemblance to the spinoff entity due to large debt-for-equity exchanges between parent and spinoff just prior to the offering. Since spinoffs often span more than one of the parent’s business segments, constructing historical financials is a judgment-laden “forensic” process that results in significant costs and offering delays. Given the positive value implications of restructuring via spinoff, we propose changes to spinoff accounting rules that reduce historical statement requirements and improve proforma disclosure.