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What Is a Divestiture?


A divestiture is the partial or full disposal of a business unit through sale, exchange, closure, or bankruptcy. A divestiture most ordinarily results from a management decision to cease operating a business unit because it's not a part of core competency.


A divestiture can also occur if a business unit is deemed to be redundant after a merger or acquisition, if the disposal of a unit increases the resale value of the firm, or if a court requires the sale of a business unit to enhance market competition.


Divesting Assets


There are many various reasons why a corporation may commit to dump or divest itself of its assets. Here is a number of the foremost prevalent reasons why:


  1. Bankruptcy: Companies that are hunting the method of bankruptcy will dump parts of the business.

  2. Cutting back on locations: a corporation may find it's too many locations. When consumers just aren't coming through the doors, the corporate is also forced to shut or sell down a number of their locations. this can be very true within the retail sector.

  3. Selling losing assets: If the demand for a product or service is under expected, a corporation might have to sell it off. Continuing to supply and sell an underperforming asset can dig the company's bottom line when it can consider those who are performing.


Important Note- Government regulation may require corporations to divest a number of their assets, especially to avoid a monopoly.


KEY TAKEAWAYS


  • Divestitures happen when a corporation disposes of all or a number of its assets by selling, exchanging, or closing them down, or through bankruptcy.

  • As companies grow, they will decide that they specialize in too many business lines, so divestiture is thanks to remaining profitable.

  • Divestiture allows companies to chop back on costs, repay their debts, specialize in their core businesses, and enhance shareholder value.

From Team,

Sunita Finlease


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