Drilling Down on Breaking Up

Unlike in private sales, the parent company usually retains a large percentage of stock of the split-off company, meaning it still has significant interest in its success. As a result, the oft-stated goal of achieving "clarity" is sometimes more buzzword than reality.

A public transfer of a noncore asset does give the selling company a number of other advantages. In a split-off in which a subsidiary is sold in a public offering, the selling company gets quick access to cash without diluting the stock of the parent. The seller receives cash for a small portion of a noncore entity, while leaving the shares of the core business virtually untouched.

The parent company also can see a bump up in the stock price. Often, companies will divest a noncore asset that is seen as a drag on the company's current multiple or share price. Once the asset is spun off, the parent doesn't have the additional weight on the stock price.

Public markets also offer a large premium to prices offered by private buyers -- up to 20%, in some instances. If a company has intentions of selling an asset later, and if the smaller, noncore asset can stand alone in the public market, it suits the company to put a public price on the asset.

"It makes sense whenever possible to establish the value of the company in the public market before selling or spinning of a piece," said Arzac.

Wild Side

The public issuances go beyond split-offs and spinoffs. Companies tend to get creative during times of frenzy, leading to exotic transactions that bewilder even the most sophisticated investor.

Tuesday's deal between Alberto-Culver(ACV Quote) and Regis(RGS Quote) was unusual by any standard. The transaction was elaborate enough that shares of both companies didn't open on the New York Stock Exchange for several minutes after regular trading began.