In the context of mergers & acquisitions, a split-up is a corporate action in which a single firm is split into two or more independent, separately-administered companies. Upon the split-up, the shares of the original company will be exchanged for shares in one of the two newly formed entities at the discretion of shareholders.
What Does Split-Up Mean?
Reasons for Split-Up
- Government's Mandate The government interferes in a company's operations and tries to minimise monopolistic practices by instructing to split-up. Usually, the market doesn't have a pure monopoly break-up. However, Google and Facebook are considered monopolies and are expected to be split-up by the government of the U.S. to protect consumers.
- 2Strategic Advantage Some companies strategise and split-up with the aim of restructuring their operations. These companies may have a wide range of discrete business lines and may require distinct resources, capital financing, and management. Shareholders greatly benefit from such split-ups because they separately manage each segment and maximise the profit of each of them. The cumulative profit of each entity may ideally exceed the profit obtained by a single large firm.
- A split-up describes the action of a corporation segmenting into two or more separately-run entities.
- Split-ups are mainly executed either because a company seeks to slug out different business lines in an effort to maximize efficiency and profitability, or because the government forces this action in an effort 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.
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