Why Divest a Business

However, a recent survey of executives confirms that this process is mostly abandoned for a variety of reasons, including management`s perception that asset unbundling will be too complicated or that there will be few interested buyers. Executives and boards of directors often worry that divestments will reduce the size of a company in a way that makes it difficult to replace profits. While it is never easy to make this decision, there are a variety of situations where it might be the right choice to consider divestiture. Below, we discuss 6 reasons to sell your trading assets. In 2020, General Electric Corporation (GE) announced the completion of the divestment of its biopharmaceutical business, in which GE received approximately $20 billion in cash. According to the press release, GE Chairman and CEO H. Lawrence Culp Jr. said the sale helped „reduce the risk on our balance sheet and further strengthen our financial position.” The sale of a business is rarely a one-time activity. Our research shows that companies that actively manage their divestment portfolios selectively and disciplinedly outperform their competitors. With time and practice, these companies build institutional capacity to identify and take advantage of divestment opportunities whenever they arise. The best have become what we call „ready to sell” – able to consistently act at the right time and in the right way to create the most value for their shareholders.

A TSA may require the seller to plan the cost of essential services in different functional areas in order for the business to be divested. These services may include finance and accounting, human resources (HR), legal, information technology (IT), procurement and other services. The plan paid off. Since the beginning of 2007, Bell Aliant`s shares have outperformed other Canadian regional airlines. Bell Canada`s disciplined divestment planning allowed it to create a regionally focused airline that expanded through the acquisition of additional rural assets. When it comes to divestitures, the best companies are diligently unsentimental, sometimes throwing companies with a long and rich history overboard. Take the case of Roche. Starting in 2000, the Swiss pharmaceutical giant sold its flavors and fragrances, vitamins and fine chemicals businesses to focus on expanding its leading positions in oncology and diagnostics. The separation from these companies could not have been easy. Roche had been a major player in flavours and fragrances since 1963 and had pioneered the industrial synthesis of vitamin C as early as 1933. Overall, the divested business accounted for more than a quarter of Roche`s sales in the 1990s. Regularly identify candidates for divestment – companies that meet these criteria: If your business is like most, it focuses on buying and not selling assets.

So if you decide to divest a business, you risk doing it at the wrong time or in the wrong way. A number of stakeholders – board members, employees, shareholders, business partners, regulators and policymakers – are affected by asset sales and may react negatively to it. In finance, the sale or disposal is defined as the sale of an asset by sale, barter or closure. Divestment is an important way to create value for companies in the merger, acquisition and consolidation process. For example, a merger can result in redundant operations and businesses. Divestitures allow the company to improve operational efficiency and reduce costs. However, there are many reasons why companies engage in divestments, and not all of them have a positive impact on the business. Are we selling all or part of the business? Most of the time, it`s easier to sell an entire business than to break it up into pieces, keep some and sell others. However, in some cases, the sale of the entire business is neither desirable nor feasible.

This was the case with Bell Canada`s local fixed telephony business, where the real value lay in the separation and creation of a different ownership structure for the urban and rural parts of the company. This means looking at each investment or divestment not only in terms of what it will do for the business, but also how it will affect your own lifestyle. Companies should only sell companies that are not important to their core business and are more valuable to other businesses than their own. The divestiture process described below is usually led by professionals working in a company`s business development department. Divestment is the act of a company selling an asset. Although disposal may refer to the sale of an asset, it is most often used in connection with the sale of a non-core business unit. The sale can be considered the direct opposite of an acquisition. Divestment is a difficult decision for a company.

However, there are many reasons why a company would sell an asset or subsidiary. Here are some of them: In any event, the rationale for a business transfer must be strategic, clear and persuasive, and that the board fully understands and endorses. A simple question that administrators can ask is whether and how deleting a business unit allows the company to do something it can`t do today. Wall Street and business analysts can reward companies when they make the decision to sell or buy a company when it can generate the most value, and both are likely to receive exceptionally positive press: the former owner for selling an asset at its maximum value and the new owner for acquiring a business that generates higher revenues and strengthens their competitiveness. Of course, the proper structuring of the deal is only part of a successful divestment story. There is a human narrative that also needs to be handled carefully. This is where a creative approach to compensation and HR policy can help. A good way to approach the issue of value allocation is to structure the transaction in such a way that both buyer and seller win if the divested business is successful. For example, IRS rules allow tax-free divestment transactions under a reverse Morris trust. The structure of these transactions can be complex, but they essentially boil down to the seller`s spin-off of a business or division to its shareholders, after which the acquiring company merges with the separate entity.

The result is that both groups of shareholders own the newly created company, so that each only wins if it goes well. Examples of Morris reverse escrow companies include StarKist, the North American spin-off of H.J. Heinz in pet food, and a number of its other transactions with Del Monte in 2002; Disney`s sale of ABC Radio to Citadel Broadcasting in 2007; and Kraft Foods` agreement to sell Post cereal to Ralcorp in the same year. While a sale is not as complex as other divestitures, it does raise important considerations for the board, particularly how to maximize shareholder value. Management must tell directors if there is a particular buyer or if the business unit is marketed to a variety of potential buyers – and if they are, how and to whom. Private equity buyers may have different requirements or conditions than corporate buyers. If the potential buyer is another company, the board should know if it operates in the same industry and be able to raise its concerns with management. This could involve asking management if the company abandons the business altogether, rather than maintaining a relationship through some other type of divestment. Textron has embraced this discipline. Ted Français, Chief Financial Officer of Textron, has assembled a team with strong deal execution skills.

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