What are the major types of divestitures? What
motivates firms to divest assets?
A divestiture or divestment is the disposal of the company’s assets or a through sale, exchange, closure or bankruptcy. The disposal can be full or partial depending on the reason. The selling of intellectual property rights, mergers and acquisitions are the various form of divestitures. The divestment is conducted when the firm or its part is not performing well, or to generate funds and increase the resale value etc.. The divestment helps to manage the portfolio efficiently.
The major types of divestitures are sell-offs, spin-offs, and split-ups.
- Sell-off:
Sell off is a commonly used divestiture and it is the sale of one or more business to another company. It is usually conducted by selling its subsidiary company to raise capital
- Spin-off
Spin-off uses a certain transaction to divest the business by way of-divesting a small portion of the business and makes it an independent company. Here one functioning division may be considered for divesting.
- Split up
Split-up is a divestment method where the company is splitting into to two or more separate companies. Here the parent company is dissolved.
Step by step
Solved in 3 steps
