What is divestiture in management?

A divestiture is the partial or full disposal of a business unit through sale, exchange, closure, or bankruptcy. A divestiture most commonly results from a management decision to cease operating a business unit because it is not part of a company’s core competency.

What divestiture means?

Definition of divestiture 1 : the act of divesting. 2 : the compulsory transfer of title or disposal of interests (such as stock in a corporation) upon government order.

What is divestiture and example?

A partial or full disposal can happen, depending on the reason why management opted to sell or liquidate its business’ resources. Examples of divestitures include selling intellectual property rights, corporate acquisitions and mergers, and court-ordered divestments.

What are two types of divestitures?

There are three basic types of divestitures: sell-offs, spin-offs and split-ups.

What is type of divestiture?

Types of Divestments Divestment will typically take the form of a spin-off, equity carve-out, or direct sale of assets. Spin-offs are non-cash and tax-free transactions, when a parent company distributes shares of its subsidiary to its shareholders.

Why do divestitures occur?

Through divestiture, a company can eliminate redundancies, improve operational efficiency, and reduce costs. Reasons why companies divest part of their business include bankruptcy, restructuring, to raise cash, or reduce debt.

What are the objectives of divestiture?

Objectives of divestment A business firm may divest businesses which are not part of its basic operations so that it can focus on what it is good at. 2. Another objective of a divestment is obtaining funds. Divestment produces funds for firm as it is selling out one of its businesses in lieu for cash.

What is a divestiture in M&A?

Divestitures are the flip side of corporate growth involving mergers and acquisitions. Divestiture involves a corporation’s sale of one or more of its constituent parts (i.e., a branch, subsidiary or facility) or some or all of its productive assets in an effort to reduce its size.

How does a divestiture create value?

Divestitures not only bring internal improvements for companies; they also reward investors. The biggest benefits accrue to those who get both the strategy and the execution right. Those who choose the wrong exit route leave money on the table—or, worse, actually destroy value as shareholders punish their mistakes.