For example, in a friendly acquisition or merger, both companies willingly enter into the transaction and negotiate accordingly. On the other hand, hostile mergers and acquisitions are usually spearheaded by dissident stockholders or raiders who buy in first to get a share. In such cases, the target company might have a significant amount of money, might be paying thin dividends, or might as the hostile bidder believes be more in favor of growth rather than stockholder return, among others.
In addition, the management teams cooperate well when communicating with stockholders during friendly acquisitions. There are a lot of reasons why many companies prefer external growth via mergers and rather than internal growth. Divestiture is the complete or partial disposal or sale of a product line, business unit, division, or subsidiary.
In most cases, divestiture is considered an accepted growth strategy instead of diversification. It entails the full or partial disposition, conversion, and reallocation of money, people, plants, inventories, products, and equipment. The main objective of divestiture is to eliminate a segment of the business so that the freed resources can be utilized for some other, more beneficial, and profitable purpose.
Divestitures can also come about due to necessity. The U. Thomson Reuters. Department of Justice. Was It a Success? Corporate Finance. Financial Analysis. Trading Psychology. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.
We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. What Is a Divestiture? Key Takeaways A divestiture is when a company or government disposes of all or some of its assets by selling, exchanging, closing them down, or through bankruptcy. As companies grow, they may become involved in too many business lines, so divestiture is the way to stay focused and remain profitable.
Divestiture allows companies to cut costs, repay their debts, focus on their core businesses, and enhance shareholder value. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. Unique to this current wave of divestitures is the number of companies executing multiple divestitures in rapid succession or at the same time. Perspectives Better break-ups: The art of the divestiture In this issue of CFO Insights, we look at four lessons to consider when separating an entity and how to get it right the first time—and every time. Contact us Contact us via our online form.
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