What is divestiture?
If a utility sells a power plant, or if a holding company sells a subsidiary, the sale is known as a divestiture. According to Gasiorek, divestitures “may take one of three forms: a spin-off, a split-off, or a split-up.” In a spin-off, the ownership of one (or more) of the subsidiaries is transferred from the holding company to the shareholders of the holding company. In other words, the shareholders of the holding company now directly own the voting stock of one or more subsidiaries, which becomes a stand-alone company. A spin-off is very simple the holding company simply gives the voting stock of a subsidiary to the shareholders of the holding company. If done correctly, a spin-off is a tax-free reorganization under section 355 of the federal tax code. A split-off is very similar to a spin-off, except that the shareholders of the holding company must hand over holding company stock in exchange for the stock of the subsidiary. “In a split-up, the distributing company liquidates and di
