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When a company sells a portion or all of a division to the public in the form of an IPO they are doing a spin-off. The parent company would do a spin-off for several reasons. First, to raise capital. The parent may be highly leveraged. Second, to rationalize its operations by selling off a non-core business. In this type of spin-off the managers of the newly public company are (or should be) incentivized to perform well by holding stock in the new company. Finally, a parent may decide to spin-off a division in order to draw attention to the newly independent entity and perhaps to raise the stock price of the parent.

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