Divestment is the process of eliminating assets from an organization. There are many reasons for doing so, including the following:
Assets are underperforming, so they are sold to generate cash for investment in more promising opportunities.
Regulators mandate that a company sell off certain subsidiaries; this is most common in a heavily controlled industry.
Assets relating to peripheral areas are sold, so that management can concentrate its efforts on the organization’s core activities.
Prime assets are sold in order to make the business look less valuable to a corporate raider.
Assets are sold in order to raise cash to pay down debt, thereby giving the business a more conservative financial profile.
Assets are sold in order to eliminate assets causing environmental damage; doing so may improve the profile of the business with stakeholders and environmental activists.
Some divestments take the form of spin-offs, where subsidiaries are set up as separate enterprises that are owned by the former parent company’s investors. Spin-offs do not result in any cash inflow to the former parent company.