Why Renren Inc. Stock Soared Today

By Markets Fool.com

Image source: Renren Inc.

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What happened

Shares of Chinese social media network Renren Inc. (NYSE: RENN) jumped more than 20% Tuesday after the company announced it will spin off social video site woxiu.com.

So what

More specifically, Renren is forming a new subsidiary that will hold both woxiu.com and "most" of its minority stakes in privately held companies. Renren also revealed it is pursuing the spinoff to reduce the amount of investments in consolidated subsidiaries, as well as to "unlock potential" for its social video business by allowing it to operate separately from its core social networking and internet financing businesses. In turn, this will "minimize the risk that the Company could be deemed to be an 'investment company' under the Investment Company Act of 1940."

Now what

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Renren noted that, following the spinoff -- which should qualify as a tax-free distribution -- the new subsidiary will be a privately held company, and won't be subject to public company reporting requirements, or listed on any stock exchange.

Personally, that would make me uncomfortable if I were a Renren shareholder, as I'm generally convinced being afforded greater visibility into any business is an invaluable part of making informed investment decisions. So while Renren might well be unlocking the value of its business and minimizing potential risk, I wouldn't blame investors for taking at least some of their chips off the table after today's pop.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.