Why Do Firms Choose Divestiture?

Alfred Zaccagnino leverages over a decade of entrepreneurial experience to lead the Samarian Group, Ltd., a boutique financial services company providing advisory and consultation on a variety of corporate transactions. As president, Alfred Zaccagnino oversees the organization’s partnerships with corporations, foundations, endowments, and other financial entities, assisting such institutional clients with activities including asset divestiture.

Divestiture is a method of asset management that can assist a company in reducing or refocusing its portfolio. Achieved through the exchange, closure, or sale of assets, as well as via bankruptcy, divestiture occurs when a company either partially reduces or completely shuts down a specific business unit.

A firm’s management may choose to divest a portion of its assets or operations for a variety of reasons. Companies often carry out divestitures to free up financial resources for other business areas or to increase their profitability in general. They may also divest business units that fall outside of their core competency, or to get rid of redundant operations following a merger or acquisition. In some instances, divestiture can be the result of a court order. Court-ordered divestitures are generally aimed at increasing market competition and preventing the development of monopolies, as was the case in the breakup of the Bell System in 1982.

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