World Library  
Flag as Inappropriate
Email this Article

Divestment

Article Id: WHEBN0000981983
Reproduction Date:

Title: Divestment  
Author: World Heritage Encyclopedia
Language: English
Subject: Sabeel Ecumenical Liberation Theology Center, Too big to fail, Demerger, Corporate spin-off, Darfur Peace and Accountability Act
Collection: Corporate Finance, Investment, Outsourcing
Publisher: World Heritage Encyclopedia
Publication
Date:
 

Divestment

In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an investment.

Contents

  • Motives 1
  • Divestment for financial goals 2
  • Method of divestment 3
  • See also 4
  • References 5

Motives

Firms may have several motives for divestitures:

  1. a firm may divest (sell) businesses that are not part of its core operations so that it can focus on what it does best. For example, Eastman Kodak, Ford Motor Company, Future Group and many other firms have sold various businesses that were not closely related to their core businesses.
  2. to obtain funds. Divestitures generate funds for the firm because it is selling one of its businesses in exchange for cash. For example, CSX Corporation made divestitures to focus on its core railroad business and also to obtain funds so that it could pay off some of its existing debt.
  3. a firm's "break-up" value is sometimes believed to be greater than the value of the firm as a whole. In other words, the sum of a firm's individual asset liquidation values exceeds the market value of the firm's combined assets. This encourages firms to sell off what would be worth more when liquidated than when retained.
  4. divesting a part of a firm may enhance stability. Philips, for example, divested its chip division - NXP - because the chip market was so volatile and unpredictable that NXP was responsible for the majority of Philips's stock fluctuations while it represented only a very small part of Philips NV.
  5. divesting a part of a company may eliminate a division which is under-performing or even failing.
  6. regulatory authorities may demand divestiture, for example in order to create competition.
  7. pressure from shareholders for social reasons (sometimes also called disinvestment). Examples include disinvestment from South Africa in the former era of apartheid (now ended), and more recent calls for fossil fuel divestment in response to global warming.

Divestment for financial goals

Often the term is used as a means to grow financially in which a company sells off a business unit in order to focus their resources on a market it judges to be more profitable, or promising. Sometimes, such an action can be a spin-off. (For the United States: Divestment of certain parts of a company can occur when required by the Federal Trade Commission before a merger with another firm is approved. A company can divest assets to wholly owned subsidiaries.)it is a process of selling an asset. The largest, and likely most famous, corporate divestiture in history was the 1984 U.S. Department of Justice-mandated breakup of the Bell System into AT&T and the seven Baby Bells.

Method of divestment

Some firms are using technology to facilitate the process of divesting some divisions. They post the information about any division that they wish to sell on their website so that it is available to any firm that may be interested in buying the division. For example, Alcoa has established an online showroom of the divisions that are for sale. By communicating the information online, Alcoa has reduced its hotel, travel, and meeting expenses.

Firms use transitional service agreements to increase the strategic benefits of divestitures.

Divestment execution includes five critical work streams: governance, tax, carve-out financial statements, deal-basis information, and operational separation.[1]

With economic liberalization of the Indian economy, Ministry of Finance of India had set up a separate Department of Disinvestments.

See also

References

  1. ^ Hammes, Paul. "Are You Considering Divesting Assets? If Not, You Should Be". Transaction Advisors.  


This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and USA.gov, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for USA.gov and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
 
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
 
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.
 


Copyright © World Library Foundation. All rights reserved. eBooks from Project Gutenberg are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.