Divestiture: Definition, Examples, and Reasons to Divest

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In other cases the divestiture may be pursuant to a statutory requirement imposed at the time and amendment to the Act was adopted, or it may be required as a result of a foreclosure upon collateral held by the company or a bank subsidiary in connection with a debt previously contracted in good faith. Certain divestiture periods may be extended in the discretion of the Board, but in other cases the Board may be without statutory authority, or may have only limited authority, to extend a specified divestiture period. With divestiture of Okonite from Kennecott two of the large copper-producers in the United States will remain with integrated copper wire fabricating subsidiaries or divisions. They are Anaconda Copper Company, which was formed in 1929 as the Anaconda Wire & Cable Company by a series of acquisitions, and Phelps Dodge Company which acquired a copper fabricating subsidiary as a result of acquisition in 1930. These two copper-producer owned subsidiaries and the present independent fabricating companies will be among Okonite’s new owner’s competitors in certain areas of copper wire and cable production.

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Assessing the attractiveness of the industries the company has diversified into, both individually and as a group. Ranking the performance prospects of the businesses from best to worst and deciding what priority to give each of the company’s business units in allocating resources. The antitrust agencies focus on whether the divestiture package will provide the divestiture buyer with the ability and incentive to compete at such a level as to replace the competition that is being lost as a result of the transaction.


This would entail the expenditure of large sums; Okonite did not have the available capital and could not raise it; Kennecott did invest heavily in Okonite for improvements and expansion. Further expansion, increased facilities and plants in new market areas are essential not only to increase profitable operations but to the very survival of Okonite as a manufacturer of wire and cable independent of a copper producer. A few examples of divestitures include the sale of intellectual property rights, the purchase and merging of businesses, and the sale of assets required by a court. A company that’s forced to divest by court order may be required to carry out a demerger creating multiple independent entities. As a result of the demerger, a parent company may cease to exist, and each separate business unit might become its own company.

  • Thus, delay in planning for divestiture may increase the likelihood that the company will seek an extension of the time for divestiture if difficulty is encountered in securing a purchaser, and in certain situations, of course, the Board may be without statutory authority to grant extensions.
  • In order to reduce risk by way of spreading the company’s investments over a set of truly diverse industries.
  • The duration of such agreements is often closely examined by the antitrust agencies.
  • And the subsequent copied—and open—Tools transactions remained in Cooper Industries’ SAP system after the Tools division had been moved off.
  • In other words, it is this externality that can impact the direction of innovation.
  • In addition, if a company is facing financial difficulties, it may decide to sell off business lines.

The agencies do so to guard against the risk that the buyer will fail to compete successfully with the divested assets. For example, in Guinness/Grand Met, the FTC ‘required divestiture of foreign assets even though the relevant geographical market was limited to the United States’. Agencies and courts ‘are skeptical of a divestiture that relies on a “continuing relationship between the seller and buyer of divested assets” because that can leave the buyer susceptible to the seller’s actions – which are not aligned with ensuring that the buyer is an effective competitor’. Indeed, some orders have required divestitures to be ‘absolute’, meaning the merging companies ‘have no continuing ties to the divested business or assets, no continuing relationship with the buyer, and no financial stake in the buyer’s success’. A spun-off Okonite would not have available the large financial resources which it may need to remain competitive.

Iron Mountain Smart Sort Clears the Way for a Corporate Divestiture

Since the divestiture process can take several months to years, we didn’t want colleagues to feel they were putting their careers on pause. We made sure that they continued to have access to all of the outstanding talent development programs available at Citi and were still given opportunities for promotion. We also launched upskilling programs to help colleagues in operations and technology gain additional skills needed for the future. Signaling can also create a negative impact as part of any divestment activity.

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The Lease Agreement was awarded to ACAI after public notice and a competitive bidding process long prior to your consideration for, or appointment to, the position of Secretary of Transportation and Construction. Nsent to the withdrawal and cancellation of your personal guarantee under the Master Lease Agreement and the transfer of your stock in TRPI. As a related matter, we understand that the MBTA has asserted that TRPI is in arrears under the Master Lease Agreement. You and TRPI have disputed such assertion based upon the advancement of funds by TRPI to improve the premises under the lease, which, according to TRPI should be offset against payments due under the Master Lease Agreement. Although there is not an “arbitration clause” in the Master Lease Agreement contemplating the resolution of such disputes by a mutually-selected, independent arbitrator, we understand that the MBTA is considering the proposal of such a procedure for the resolution of the present problem.

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A company is said to have what type of strategic fit when businesses can perform better together than apart because of potential cost savings in sharing the same warehouse facilities or using many of the same wholesale distributors and retail dealers to access customers? By divesting some of its assets, a company may be able to cut its costs, repay its outstanding debt, reinvest, focus on its core business, and streamline its operations. Large companies experiencing unstable market conditions and competitive pressures may divest part of their business. The government objects to the sale to LTV because an integral part of the agreement to purchase (and affixed to it as Annex “B”) is a copper supply contract between Kennecott Sales Corporation (a wholly-owned subsidiary of the defendant) and LTV.

Thomson Reuters, a multinational media and information company, based in Canada, sold its Intellectual Property and Science division in July 2016. The company initiated the divestiture, in part, to reduce the amount of debt on its balance sheet. The division was purchased by Onex and Baring Private Equity for $3.55 billion in cash.

Is necessary in your case because you would normally continue to have official dealings with the MBTA, its directors, and staff, while the dispute and the personal guarantees are on-going. This disclosure will provide Governor Weld with the opportunity to decide whether additional safeguards are warranted. For example, the Governor might want to consider whether your official duties under M.G.L. c. 161A, s.6 as Chairman of the Board of the MBTA, should or could be delegated to others while the potential dispute and/or the personal guarantees remain in effect.

Ensuring this culture of excellence was key – and highly dependent on our colleagues. Management will need to develop a de-integration plan outlining the rationale behind any divestiture to both internal and external stakeholders. It is uneconomical for the firm to achieve economies of scope on its own initiative. The pre-acquisition market value of the target company. Diversify into businesses that have either key success factors or value chains that are similar to its present businesses.

Our Strategy to Simplify: Lessons from Our Divestiture Journey

In appropriate circumstances, the divestiture plan should make provision for assuring that “controlling influence” relationships, such as management or financial interlocks, will not continue to exist. Which one of the following is NOT an important aspect of evaluating the merits of a diversified company’s strategy? Assessing the competitive strength of each business the company has diversified into. Determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company’s cash hogs can be transformed into cash cows. Evaluating the strategic fits and resource fits among the various sister businesses.

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These goals are generally accomplished through structural remedies or conduct remedies, or both. Structural remedies are often used to address competitive problems that the enforcers identify in horizontal mergers (i.e., mergers involving companies with competing products at the same level of the distribution chain). As the FTC states, where a remedy is required, ‘most orders relating to a horizontal merger will require a divestiture’.

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If a company decides to divest itself of a business unit, but the reasons behind the move aren’t communicated effectively, investors may wrongly assume the divestiture is signaling the company is in financial distress. There are also drawbacks a company should bear in mind. There are direct costs involved in divestitures, including transaction and transition costs, such as the legal transfer of assets and possibly employee severance pay. Bankruptcy, it may need to divest by liquidating its assets and selling off its businesses to repay creditors. In 2006, Kodak decided to divest itself of its digital camera business and sell the operations to Flextronics.

For example, the DOJ’s Remedies Guide cautions that ‘close and persistent ties between two or more competitors . Can serve to enhance the flow of information or align incentives that may facilitate collusion or cause the loss of a competitive advantage’. Similarly, in AbbVie’s acquisition of Allergan, the FTC approved the divestiture of assets related to three drugs; however, the approval came with two dissents from commissioners. Among other things, the dissenting commissioners disagreed with the divestiture of two of the drugs to Nestlé, SA, which one commissioner characterised as ‘risky and concerning’ and representing ‘the first time the FTC is ordering drug divestitures to a company that does not offer any prescription drugs’.

Putting a price on carbon, for example, would increase the price of dirty fuels and could reduce demand for them. But climate policy historically has been highly uncertain and controversial, and the social costs generated from producing and consuming dirty fuels are not yet internalized in most parts of the world. The second externality relates to the harm pollution causes and the societal benefits that come with decreasing it. For example, cleaner energy sources increase global welfare by reducing the environmental impact of producing and consuming various products, but their prices often do not fully reflect these benefits. This further dampens the incentive for firms, individuals, and institutions to invest in pollution-reducing technologies or processes rather than the “dirty” status quo.

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For example, under section 4 of the Act the Board may extend for three one-year periods the two-year period in which a bank subsidiary of a holding company is otherwise required to divest shares acquired in satisfaction of a debt previously contracted in good faith. In such cases, however, when the permissible extensions expire the Board no longer has discretion to grant further extensions. In still other cases, where a divestiture period is prescribed by the Board, in the exercise of its regulatory judgment, the Board may have broader discretion to grant extensions. Where extensions of specified divestiture periods are permitted by law, extensions should not be granted except under compelling circumstances.

The florida income tax rate agencies will also consider accepting divestiture of less than an existing business if it is ‘possible to assemble an acceptable set of assets from both of the merging firms to create a viable divestiture’. To do so, the agencies ‘must be persuaded that these assets will create a viable entity that will restore competition’. There are several examples of these types of divestitures, including numerous in the pharmaceutical sector. The ideal divestiture package in the agencies’ eyes is often an ‘on-going, stand-alone, autonomous business’ or division that includes all assets, personnel and contractual relationships necessary to compete and that does not meaningfully rely on other parts of the merging parties’ business.

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