Reviewed by Aug 27, 2020| Updated on
What Does Split-Up Mean?
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.
Reasons for Split-Up
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.