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What is 'Unbundling'

Unbundling is a process by which a company with several different lines of business retains core businesses and sells off assets, product 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. Unbundling may also refer to offering products or services separately that had been packaged together.

BREAKING DOWN 'Unbundling'

Unbundling may be called for by the board of directors or by company managers. 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 it if it thinks the result would perform better. When the board or managers calls for unbundling, it often improves the company’s stock price. Unbundling might also occur when one company purchases another for its most valuable divisions but has little use for other aspects of the business.

Example of Unbundling

When a company unbundles, it may maintain a significant percentage of ownership in the new firm(s). In 2001, Cisco unbundled a division that became Andiamo, but it retained some ownership because it wanted to be involved in the development of a new product line that would give it a competitive advantage.

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