We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Divesture?

Mary McMahon
By
Updated: May 16, 2024
Views: 14,353
Share

Divesture is the sale or disposition of an asset. You may also hear divesture referred to as divestiture or divestment. There are a number of reasons to choose to get rid of assets, and a variety of ways in which such assets can be disposed of. In a simple example of divesture, a company which focuses on the manufacture of cars might choose to divest itself of a division which handles experimental aircraft, under the assumption that the division is worth more on its own, and that it distracts from the company's key mission.

One of the most common motivations for divesture is economic. Simply put, when an asset is no longer making money for its parent company, the company may choose to sell or otherwise dispose of it before it becomes a liability. Likewise, companies may spin off divisions which would be more profitable on their own, or be encouraged to sell divisions and assets which are more valuable to potential buyers than they are to the company.

Sometimes, divesture is carried out in response to a government mandate. Many governments are concerned about the growth of monopolies, and if a company acquires too many companies which are similar to itself, it may be ordered to divest to encourage healthy competition. If, for example, one producer of commercial aircraft bought up the other three manufacturers of aircraft in a nation, it would be considered a monopoly, and it would be ordered to divest.

Companies may also opt for divesture in response to social pressures. Socially conscious investors may be reluctant to invest in companies which produce certain products, so companies may choose to shut down production of these products in a divesture in order to attract investors. Divesture may also be related to political pressures: several companies which do business with oppressive foreign regimes, for example, have divested to improve their public image.

When a company divests, it can choose to do so gradually over time, or suddenly. There are advantages and disadvantages to both methods. A company which rapidly carries out a series of divestments may spark investor panic, leading people to believe that the company is at risk of going under, as struggling companies often sell parts of themselves off to raise capital. Slow divesture is usually seen as more prudent, suggesting that a company is carefully pruning itself to refine the goods and services it offers.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By comfyshoes — On Jul 28, 2011

@Suntan12 - I remember that. I also wanted to say that companies are sometimes forced to break up. AT&T had to sell off a lot of divisions because it was becoming a monopoly and was on the verge of breaking antitrust laws.

The funny thing is that although AT&T became a much smaller company, years later it merged with some of the companies that it sold off. For example, Bellsouth used to be part of AT&T and then it was sold off and now it is part of AT&T again. The long term employees must be really feeling some déjà vu.

By suntan12 — On Jul 28, 2011

I just wanted to say that I remember when General Motors sold off Saturn. I couldn’t believe it at the time because Saturn was one of their most profitable brands. But after reading this article, I understand why they did it because they really needed money and they knew that Saturn would be an attractive brand to buy which would easily give them the money that they needed.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
Share
https://www.smartcapitalmind.com/what-is-divesture.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.