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In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an investment. Divestiture is an adaptive change and adjustment of a company's ownership and business portfolio made to confront with internal and external changes. [1]
Firms may have several motives for divestitures:
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. In the United States, divestment of certain parts of a company can occur when required by the Federal Trade Commission 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-mandated breakup of the Bell System into AT&T and the seven Baby Bells.
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. [2]
Examples of divestment for social goals include:
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. [6] Companies often create cross-disciplined teams composed of IT, HR, legal, tax, and other key business units, to implement a business separation. [7]
With economic liberalization of the Indian economy, India's Ministry of Finance set up a separate Department of Disinvestments.
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect of strategic management, M&A can allow enterprises to grow or downsize, and change the nature of their business or competitive position.
Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
An activist shareholder is a shareholder who uses an equity stake in a corporation to put pressure on its management. A fairly small stake may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking. The goals of activist shareholders range from financial to non-financial. Shareholder activists can address self-dealing by corporate insiders, although large stockholders can also engage in self-dealing to themselves at the expense of smaller minority shareholders.
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 the United States, to refer to the use of a concerted economic boycott designed to pressure the government of South Africa into abolishing its policy of apartheid. The term has also been applied to actions targeting Iran, Sudan, Northern Ireland, Myanmar, Israel, and China.
A controlling interest is an ownership interest in a corporation with enough voting stock shares to prevail in any stockholders' motion. A majority of voting shares is always a controlling interest. When a party holds less than the majority of the voting shares, other present circumstances can be considered to determine whether that party is still considered to hold a controlling ownership interest.
The Committee on Foreign Investment in the United States is an inter-agency committee of the United States government which reviews the national security implications of foreign investments in U.S. companies or operations, using classified information from the United States Intelligence Community.
Linde plc is a global multinational chemical company founded in Germany and, since 2018, domiciled in Ireland and headquartered in the United Kingdom. Linde is the world's largest industrial gas company by market share and revenue. It serves customers in the healthcare, petroleum refining, manufacturing, food, beverage carbonation, fiber-optics, steel making, aerospace, material handling equipment (MHE), chemicals, electronics and water treatment industries. The company's primary business is the manufacturing and distribution of atmospheric gases, including oxygen, nitrogen, argon, rare gases, and process gases, including carbon dioxide, helium, hydrogen, ammonia, electronic gases, specialty gases, and acetylene.
BlackRock, Inc. is an American multinational investment company based in New York City. Founded in 1988, initially as an enterprise risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager, with US$8.59 trillion in assets under management as of December 31, 2022. BlackRock operates globally with 70 offices in 30 countries, and clients in 100 countries. BlackRock is the manager of the iShares group of exchange-traded funds, and along with The Vanguard Group and State Street, it is considered to be one of the Big Three index fund managers. Its Aladdin software keeps track of investment portfolios for many major financial institutions and its BlackRock Solutions division provides financial risk management services. BlackRock is ranked 184th on the Fortune 500 list of the largest United States corporations by revenue.
A corporate spin-off, also known as a spin-out, or starburst or hive-off, is a type of corporate action where a company "splits off" a section as a separate business or creates a second incarnation, even if the first is still active. It is distinct from a sell-off, where a company sells a section to another company or firm in exchange for cash or securities.
Nexperia is a semiconductor manufacturer headquartered in Nijmegen, the Netherlands. It is a subsidiary of the partially state-owned Chinese company Wingtech Technology. It has front-end factories in Hamburg, Germany, Greater Manchester, England, and Newport, Wales. It is the former Standard Products business unit of NXP Semiconductors. The company's product range includes bipolar transistors, diodes, ESD protection, TVS diodes, MOSFETs, and logic devices.
NXP Semiconductors N.V. (NXP) is a Dutch semiconductor designer and manufacturer with headquarters in Eindhoven, Netherlands. The company employs approximately 31,000 people in more than 30 countries. NXP reported revenue of $11.06 billion in 2021.
A divisional buyout or carveout, in finance, is a transaction in which a corporate division, business unit, or subsidiary is acquired using the same financial structuring as a leveraged buyout.
Disinvestmentfrom 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. The disinvestment campaign, after being realised in federal legislation enacted in 1986 by the United States, is credited by some as pressuring the South African Government to embark on negotiations ultimately leading to the dismantling of the apartheid system.
A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of a merger, acquisition, buyback, spin-off, or privatization are fair. It is rendered for a fee. They are typically issued when a public company is being sold, merged or divested of all or a substantial division of their business. They can also be required in private transactions not involving a company that is traded on a public exchange, as well as in circumstances other than mergers, such as a corporation exchanging debt for equity. Some of the specific functions of a fairness opinion are to aid in decision-making, mitigate risk, and enhance communication.
Disinvestment from Israel is a campaign conducted by religious and political entities which 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 campaign is related to other economic and political boycotts of Israel.
Equity carve-out (ECO), also known as a split-off IPO or a partial spin-off, is a type of corporate reorganization, in which a company creates a new subsidiary and subsequently IPOs it, while retaining management control. Only part of the shares are offered to the public, so the parent company retains an equity stake in the subsidiary. Typically, up to 20% of subsidiary shares is offered to the public.
NMDC Steel Limited was formed under Government of India under Ministry of Steel with the help of NMDC's resources for setting up a 3 MTPA capacity greenfield Integrated Steel Plant based on Hi-Smelt technology in Nagarnar, located 16 km from Jagdalpur in Chhattisgarh state with an estimated outlay of Rs. 25500 crore. A pure-play miner, NMDC had in 2009-10 conceived the Nagarnar steel plant with the intention of moving up the value chain and diversifying its portfolio. The idea was also to hedge itself against the vagaries of iron ore prices. This is the only new large-scale steel plant currently fully ready to start production India, with little likelihood of a new plant of similar size plant coming up in the next few years. Tata Steel and JSW Steel are expanding capacity at their existing mills.
The carbon bubble is a hypothesized bubble in the valuation of companies dependent on fossil-fuel-based energy production, resulting from future decreases in value of fossil fuel reserves as they become unusable in order to meet carbon budgets and recognition of negative externalities of carbon fuels which are not yet taken into account in a company's stock market valuation.
Transaction Advisors is a technical journal that was founded in Chicago. It is designed for senior corporate executives at public companies, board members, and private equity investors.
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, and other financial instruments connected to companies involved in extracting fossil fuels.
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