11.2.2.1.1. Divestiture
Sometimes only part of a company is acquired, usually a subsidiary or a division with a discrete product line. Sometimes a portion of a company’s underlying assets is acquired, rather than the company itself. These partial sales are generally spoken of as “unlocking value” in some way.
Divestiture is the sale, exchange, or other disposal of an asset. A corporation might divest itself of a subsidiary, a division, or a plant or other physical asset. There are several reasons why a divestiture might be desirable; for example, the corporation might want to focus on its core business, a division could be underperforming, the asset might be worth more when sold than as part of the corporation, government regulators could have ordered the divestiture, or the corporation might just need or want to use the proceeds of a sale for other purposes. The term “divestiture” can also refer to the sale of part or all of a minority interest or other ownership interest in another corporation.
One type of divestiture is a spin-off, in which a subsidiary or division of the parent company becomes an independent company. In a spin-off, shares of the new subsidiary are distributed to the shareholders of the parent company on a pro rata basis—a 2% owner of the parent company will also be a 2% owner of the spun-off subsidiary. The buyer then acquires the spun-off company in a stock purchase. The parent corporation does not receive cash, since the shares of the spun-off company serve as compensation to the shareholders.
A fairly uncommon variation of a spin-off is a split-off. In a split-off, a subsidiary becomes an independent corporation, but shares of the subsidiary’s stock are distributed to those shareholders who are willing to exchange their shares in the parent company for shares in the newly independent subsidiary. Shareholders of the parent company who are unwilling to exchange their stock remain shareholders of the parent. At the