Tom: How did Wall Street react to the news of this deal?

Tina: The Wall Street reacted very favorably. When the news was first announced, Expedia stock jumped 12.9%.

Tom: In most cases, I understand that in a “spin-off,” the parent company distributes shares of the spin-off company to the parent company’s shareholders. But how do they determine how many shares are to be distributed to each shareholder?

Tina: As I mentioned, it is allocated proportionately. In other words, the shares are usually distributed on a pro rata basis, where each shareholder will receive stock in an amount relative to their holdings of the parent company.

Tom: What about the Motorola case? In January of this year, the company formed two separate companies: one focusing on handsets and home entertainment, and the other on enterprise communications gear. Is this also a “spin-off” deal?

Tina: No, it is not technically a spin-off, but instead a “split-off.” Motorola Mobility is a split-off of Motorola’s cell phone and cable TV set-top box divisions. Do not confuse a spin-off with a split off.

Tom: Hmmm, “Spin-off” and “split-off,” what are the differences?

Tina: Well, a “split-off” is also a type of company reorganization, but the stock of a split-off company, or the subsidiary, is “exchanged” for shares in a parent company.

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