Divestiture

AAA

DEFINITION of 'Divestiture'

The partial or full disposal of a business unit through sale, exchange, closure or bankruptcy. Divestiture may result from a management decision to no longer operate a business unit because it is not part of a core competency. It may also occur if a business unit is deemed redundant after a merger or acquisition, if jettisoning a unit increases the resale value of the firm or if a court requires the sale of a business unit to improve market competition.

INVESTOPEDIA EXPLAINS 'Divestiture'

Divestitures are a way for a company to manage its portfolio of assets. As companies grow they may find they are trying to focus on too many lines of business, and that they must close some operational business units in order to focus on more profitable lines. This is a problem that conglomerates may face. Companies may also sell off business lines if they are under financial duress. For example, an automobile manufacturer that sees a significant and prolonged drop in competitiveness may sell off its financing division in order to pay for the development of a new line of vehicles.

One of the most famous cases of court-ordered divestiture involves the breakup of the Bell System in 1982. The United States government determined that Bell controlled too large a portion of telephone service, and brought anti-trust charges in 1974. The divestiture created several new telephone companies, including AT&T and the “Baby Bells” as well as new equipment manufacturers.

Business units that are divested may be spun off into their own companies rather than shuttered. 

RELATED TERMS
  1. Asset Rationalization

    Reorganizing a firm's assets in order to improve operating efficiencies ...
  2. Discontinued Operations

    A segment of a company's business that has been sold, disposed ...
  3. Consolidation

    In technical analysis, the movement of an asset's price within ...
  4. De-Merger

    A business strategy in which a single business is broken into ...
  5. Conglomerate

    A corporation that is made up of a number of different, seemingly ...
  6. Disposition

    Getting rid of an asset or security through a direct sale or ...
Related Articles
  1. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  2. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  3. Fundamental Analysis

    Accretion / Dilution Analysis: A Merger Mystery

    This analysis tool is an effective way to value mergers and acquisitions. The deal's on the table, but should you sign the papers?
  4. Investing

    The Art Of Selling A Losing Position

    Knowing whether to sell or to hold is tough. And no rule fits all. Find out what to consider.
  5. Options & Futures

    Reverse Mergers: The Pros And Cons

    Reverse mergers can provide excellent opportunities for companies and investors, but there are still some downsides and risks.
  6. Options & Futures

    Parents And Spinoffs: When To Buy And When To Sell

    Spinoffs can create great investing opportunities, but there's a time to stick around and a time to jump ship.
  7. Insurance

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.
  8. Investing

    Use Breakup Value To Find Undervalued Companies

    Find out a company's worth if it were sold in pieces - it may be more than you think.
  9. Investing

    Mergers Put Money In Shareholders' Pockets

    Learn the five ways mergers and acquisitions can increase a company's value.
  10. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center