Updated on March 9, 2023
Divestiture is defined as a complete or partial disposal of a business/firm by means of sale, exchange, bankruptcy or business closure. A divestiture decision is generally arrived at by the Board or management to stop business operations.
Reasons for Divestiture
Reasons for Divestiture are:
1. The business to be divested is not part of its core competency or focus area.
2. The business is no longer feasible due to a merger or acquisition.
3. The business is up for sale and disposal of one of its non-core operations enhances its market value.
4. A court has ordered winding up of the business.
Benefits of Divestiture
Benefits of Divestiture are:
1. Divested companies may be spun off into new business(es).
2. Governments may divest partly or majorly, their stake, also called privatization, to raise money or to give the private sector the chance to run its operations.
3. Divestiture can help companies to reduce costs, repay outstanding debt, streamline operations and focus on the main business.