What Is Bifurcation?

Bifurcation is splitting one company into two separate divisions, creating two new companies that can sell or issue shares to stockholder🔜s. Companies may bifurcate during a restructuring, for certain tax advantages, or to raise cap꧙ital.

Benefits of Bifurcation

ꦚA company might excise a division because it has a revenue stream or a business plan different from the main company. Companies also bifurcate to raise capital. A food company that sells many products might bifurcate the product lines into two companies so the new company can obtain independent financing by is𝕴suing equity shares.

If a company decides to bifurcate, shareholders in the initial company are given shares of the new company through a corporate 澳洲幸运5开奖号码历史查询:reorganization. Shareholders may benefit from the breakup since the new shares might rise at a faster rate than the shares of the combined entity. A company may also break off part of the company because it's unprofita🐎ble, selling one of the entities and using the funds to reinvest in the surviving company.

Example

In 2019, the clothing retailer Gap Inc. (GAP) announced it would break up and bifurcate the Old Navy brand from the Gap stores. Old Navy would be a stand-alone company. Old Navy generated $8 billion in sales in 2018, while the Gap and the remaining stores combined for $9 billion in revenue.

Senior executives noted that the bifurcation would allow or free up Old Navy to expand and grow with a separate business strategy. However, in 2020, Gap Inc. failed to complete the split, concluding that "the cost and complexity of splitting into two companies, combined with softer business performance, limited our ability to create appropriate value from separation."

The Bottom Line

Bifurcation occurs when one company restructures or reorganizes, dividing into two, creating two new companies that sell shares to stockholders. Companies may use this strategy if one unit has a business plan different from the main ওcompany, to raise capital, or separate a failing portion.