Divestiture involves the reduction or disposal of an asset or investment. This may be done through a variety of methods. A company, for example, may decide to sell certain assets in order to increase liquidity. If the break-up value is particularly high, it may even choose to have itself completely liquidated. It may also choose to declare bankruptcy or exchange some of its assets.
A company may decide to divest gradually, thus giving itself more time to decide on which assets to dispose of. This also allows the business to put an end to the process and maintain its remaining assets once it reaches its objectives. On the other hand, in more urgent situations, it may also choose to engage in large-scale divestiture.
Companies may divest themselves of certain assets or areas of their business in order to streamline operations. Let’s take the example of a company that has previously tried to diversify its product offerings. If during the course of operations, management realizes that it would be able to operate better by focusing on one or two main products, it may divest itself of production areas which are no longer profitable.
In the event of a financial crisis, businesses may also choose to liquidate certain assets in favour of settling their financial obligations.
While the term divestiture is often used to describe the actions of companies, it may also be used in the context of personal investment. An individual who decides to sell shares of stock or other securities, for example, is divesting himself of some of his assets.
