posted on 06-06-2019

Divestiture

Updated August 7, 2020
Written By
Paul Tracy

What is a Divestiture?

A divestiture or divestment is the reduction of an asset or business through sale, liquidation, exchange, closure, or any other means for financial or ethical reasons. It is the opposite of investment.

How Does a Divestiture Work?

Let's assume Company XYZ is the parent of a food company, a car company, and a clothing company. If for some reason Company XYZ wants out of the car business, it might divest the business by selling it to another company, exchanging it for another asset, or closing down the car company.

Why Does a Divestiture Matter?

Optimists often look at divestitures as ways to streamline (i.e., "get back to basics"), reduce debt, and enhance shareholder value. Pessimists may view them as concessions that the divested assets were not performing well.