CFA Level II Corporate Finance

Written by: Nicholas Blain

If you have been confused over the difference between a “spin-off” and a “split-off”, consider the current situation at Pfizer. They will be splitting off 80% of their Zoetis business: this means that current Pfizer shareholders will be offered Zoetis shares IN EXCHANGE for their Pfizer shares. In other words, shareholders choose which company to own.

In a spin-off, shareholders are given shares in the new entity, so that they become dual owners. The theoretical shareholder value would be the same under both transactions, though with the proposed split-off there is uncertainty over what the market value will be subsequently. For this reason, Pfizer is biasing the offer so that shareholders would get $108 of Zoetis stock for $100 of Pfizer stock.

Split-offs a relatively rare, so this is an interesting example. You could also compare the split-off vs spin-off distinction to the stock repuchase vs dividend difference.