Reviewed by Oct 05, 2020| Updated on
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.
1. 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.
2. Strategic 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.