Hewlett Packard (HP) announced the spin-off of its Agilent Technologies unit to focus on its main business of computers and printers, where sales have been lagging behind such competitors as Sun Microsystems. Agilent makes test, measurement, and monitoring instruments; semiconductors; and optical components. It also supplies patient-monitoring and ultrasound-imaging equipment to the health care industry. HP will retain an 85% stake in the company. The cash raised through the 15% equity carve-out will be paid to HP as a dividend from the subsidiary to the parent. Hewlett Packard will provide Agilent with $983 million in start-up funding. HP retained a controlling interest until mid-2000, when it spun-off the rest of its shares in Agilent to HP shareholders as a tax-free transaction.
-Discuss the conditions under which this spin-off would constitute a tax-free transaction.

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The Answer of Hewlett Packard (HP) announced the spin-off of its Agilent Technologies unit to focus on its main business of computers and printers, where sales have been lagging behind such competitors as Sun Microsystems. Agilent makes test, measurement, and monitoring instruments; semiconductors; and optical components. It also supplies patient-monitoring and ultrasound-imaging equipment to the health care industry. HP will retain an 85% stake in the company. The cash raised through the 15% equity carve-out will be paid to HP as a dividend from the subsidiary to the parent. Hewlett Packard will provide Agilent with $983 million in start-up funding. HP retained a controlling interest until mid-2000, when it spun-off the rest of its shares in Agilent to HP shareholders as a tax-free transaction.
-Discuss the conditions under which this spin-off would constitute a tax-free transaction.

Hewlett Packard (HP) Announced the Spin-Off of Its Agilent Technologies