Syllabus D. Corporate Reconstruction And Re- Organisation D2. Business re-organisation

D2ab. Divestment 2 / 7

Syllabus D2ab)

a) Recommend, with reasons, strategies for unbundling parts of a quoted company.

b) Evaluate the likely financial and other benefits of unbundling.

Divestment is the process of selling an asset (business)

This can be achieved either by:

  • - selling the whole business to a third party

  • - selling the assets piecemeal

Reasons for divestment

  1. The principal motive for divestment will be if they either do not conform to group or business unit strategy.

  2. A company may decide to abandon a particular product/activity because it fails to yield an adequate return.

  3. Allowing management to concentrate on core business.

  4. To raise more cash possibly to fund new acquisitions or to pay debts in order to reduce gearing and financial risk.

  5. The management lack the necessary skills for this business sector

  6. Protection from takeover possibly by disposing of the reasons for the takeover or producing sufficient cash to fight it effectively.