finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

and

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

, divestment or divestiture is the reduction of some kind of

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

. Divestiture is an adaptive change and adjustment of a company's ownership and business portfolio made to confront with internal and external changes.

Motives

Firms may have several motives for divestitures: # 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 The Eastman Kodak Company, referred to simply as Kodak (), is an American public company that produces various products related to its historic basis in film photography. The company is headquartered in Rochester, New York, and is incorporated i ...

Ford Motor Company Ford Motor Company (commonly known as Ford) is an American multinational corporation, multinational automobile manufacturer headquartered in Dearborn, Michigan, United States. It was founded by Henry Ford and incorporated on June 16, 1903. T ...

, Future Group and many other firms have sold various businesses that were not closely related to their core businesses. # 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 CSX Corporation is an American holding company focused on rail transportation and real estate in North America, among other industries. The company was established in 1980 as part of the Chessie System and Seaboard Coast Line Industries merge ...

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. # 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. # divesting a part of a firm may enhance stability.

Philips Koninklijke Philips N.V. (), simply branded Philips, is a Dutch multinational health technology company that was founded in Eindhoven in 1891. Since 1997, its world headquarters have been situated in Amsterdam, though the Benelux headquarter ...

, 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. # divesting a part of a company may eliminate a division which is under-performing or even failing. # regulatory authorities may demand divestiture, for example in order to create competition. # pressure from shareholders for social reasons (sometimes also called

disinvestment Disinvestment refers to the use of a concerted economic boycott to pressure a government, industry, or company towards a change in policy, or in the case of governments, even regime change. The term was first used in the 1980s, most commonly in ...

). Examples include

disinvestment from South Africa Disinvestment from South Africa was first advocated in the 1960s in protest against South Africa's system of apartheid, but was not implemented on a significant scale until the mid-1980s. A disinvestment policy the U.S. adopted in 1986 in resp ...

in the former era of

apartheid Apartheid ( , especially South African English: , ; , ) was a system of institutionalised racial segregation that existed in South Africa and South West Africa (now Namibia) from 1948 to the early 1990s. It was characterised by an ...

(now ended),

disinvestment from Israel Disinvestment from Israel is a campaign that aims to use disinvestment to pressure the government of Israel to put "an end to the Israeli occupation of Palestinian territories captured during the 1967 military campaign." The disinvestment camp ...

due to the occupation of the Palestinian territories,

disinvestment from Russia Since early 2022, Russia and Belarus have been boycotted by many companies and organizations in Europe, North America, Australasia, and elsewhere, in response to the Russian invasion of Ukraine, which is supported by Belarus. , the Yale School ...

due to the

2022 Russian invasion of Ukraine On 24 February 2022, , starting the largest and deadliest war in Europe since World War II, in a major escalation of the Russo-Ukrainian War, conflict between the two countries which began in 2014. The fighting has caused hundreds of thou ...

and calls for

fossil fuel divestment Fossil fuel divestment or fossil fuel divestment and investment in climate solutions is an attempt to reduce climate change by exerting social, political, and economic pressure for the institutional divestment of assets including stocks, bonds, ...

in response to

climate change Present-day climate change includes both global warming—the ongoing increase in Global surface temperature, global average temperature—and its wider effects on Earth's climate system. Climate variability and change, Climate change in ...

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 Spin-off, Spin Off, Spin-Off, or Spinoff may refer to: Entertainment and media *Spinoff (media), a media work derived from an existing work *''The Spinoff'', a New Zealand current affairs magazine * ''Spin Off'' (Canadian game show), a 2013 Canad ...

. In the United States, divestment of certain parts of a company can occur when required by the

Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) United States antitrust law, antitrust law and the promotion of consumer protection. It ...

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 corporate divestiture in history was the 1984

U.S. Department of Justice The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the U.S. government that oversees the domestic enforcement of federal laws and the administration of justice. It is equi ...

-mandated

breakup of the Bell System The Bell System held a virtual monopoly over telephony infrastructure in the United States since the early 20th century until January 8, 1982. This divestiture of the Bell Operating Companies was initiated in 1974 when the United States Departme ...

into

AT&T AT&T Inc., an abbreviation for its predecessor's former name, the American Telephone and Telegraph Company, is an American multinational telecommunications holding company headquartered at Whitacre Tower in Downtown Dallas, Texas. It is the w ...

and the seven

Baby Bell A Regional Bell Operating Company (RBOC) was a corporate entity created as result of the antitrust lawsuit by the United States Department of Justice against the Western Electric Company and American Telephone and Telegraph Company (AT&T) in 19 ...

s. Of the 1000 largest global companies, those that are actively involved in both acquiring and divesting create as much as 1.5 to 4.7 percentage points higher shareholder returns than those primarily focused on acquisitions.

Divestment for social goals

Examples of divestment for social goals include: *

Disinvestment from Israel Disinvestment from Israel is a campaign that aims to use disinvestment to pressure the government of Israel to put "an end to the Israeli occupation of Palestinian territories captured during the 1967 military campaign." The disinvestment camp ...

, a movement by critics of Israel (since 1920s) *

Disinvestment from South Africa Disinvestment from South Africa was first advocated in the 1960s in protest against South Africa's system of apartheid, but was not implemented on a significant scale until the mid-1980s. A disinvestment policy the U.S. adopted in 1986 in resp ...

in the former era of

(1960s-1990s) *

Tobacco industry The tobacco industry comprises those persons and companies who are engaged in the growth, preparation for sale, shipment, advertisement, and distribution of tobacco and tobacco-related products. It is a global industry; tobacco can grow in any ...

divestment, coordinated by the NGO Tobacco-Free Portfolios (since 2000s) *

Fossil fuel divestment Fossil fuel divestment or fossil fuel divestment and investment in climate solutions is an attempt to reduce climate change by exerting social, political, and economic pressure for the institutional divestment of assets including stocks, bonds, ...

in response to

global warming Present-day climate change includes both global warming—the ongoing increase in global average temperature—and its wider effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes ...

, coordinated by the NGO 350.org (since 2010s) *

Factory farming Intensive animal farming, industrial livestock production, and macro-farms, also known as factory farming, is a type of intensive agriculture, specifically an approach to mass animal husbandry designed to maximize production while minimizing co ...

divestment and big livestock divestment in response to environmental destruction, animal suffering, and human health concerns, coordinated by NGO Feedback Global.

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. Companies often create cross-disciplined teams composed of IT, HR, legal, tax, and other key business units, to implement a business separation. With

economic liberalization Economic liberalization, or economic liberalisation, is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical liber ...

of the Indian economy, India's

Ministry of Finance A ministry of finance is a ministry or other government agency in charge of government finance, fiscal policy, and financial regulation. It is headed by a finance minister, an executive or cabinet position . A ministry of finance's portfoli ...

set up a separate Department of Disinvestments.

References

{{Authority control Investment Corporate finance Outsourcing

Motives

Divestment for financial goals

Divestment for social goals

Method of divestment

See also

References