Unbundling

Definition of 'Unbundling'


A process by which a large company with several different lines of business retains one or more core businesses and sells off the remaining assets, product/service lines, divisions or subsidiaries. Unbundling is done for a variety of reasons, but the goal is always to create a better performing company or companies (except in the case of government-forced unbundling).

Investopedia explains 'Unbundling'


A company’s board of directors, its managers or regulators may call for unbundling. The board of directors may call for it if the company’s stock is performing poorly and/or the company needs to raise capital or wants to distribute cash to shareholders. Management might call for unbundling if it thinks the result would be a new company that would perform better on its own. Regulators may force unbundling when they perceive a company to have become anticompetitive. When the board or managers calls for unbundling, it often improves the company’s stock price; the opposite tends to happen when regulators call for it.

Unbundling might occur when one company purchases another for its most valuable divisions but has little desire for the other aspects of the business. When this happens, it is called a sell-off, and is usually done to unload poorly performing divisions. Unbundling might also occur when a company wants to sharpen its focus or recover from a bad acquisition, or when economic conditions force a company to re-examine its structure. Unbundling is a common method of creating a new company.

When a company unbundles, it may send its employees to the unbundled firm(s) and maintain a significant percentage of ownership in the new firm(s) if it thinks it will benefit from this relationship. This happened in 2001 when Cisco unbundled a division that became Andiamo but wanted to be involved in the development of a new product line that might give Cisco a competitive advantage.



comments powered by Disqus
Hot Definitions
  1. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  2. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  3. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  4. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  5. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
  6. Retail Sales

    An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce.
Trading Center