We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Divestiture?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Divestiture, also known as divestment, is the release, rather than the acquisition, of assets. It could be considered the reverse of an investment, and may be carried out for financial, state mandated, or ethical reasons. Assets can be divested slowly over time, or in a chunk, depending on which strategy works better for the company or institution doing the divesting. When a large stock holder engages in divestiture, it can dramatically change the face of the company being divested by breaking up the stock, and it can also send a powerful message.

The most common reason for a divestiture is a financial one. If a company is breaking itself up through a divestiture, it may be because the divested asset is worth more as a separate entity, or because divesting allows the company to redirect its focus to a primary market. This type of divestiture is undertaken with the consent of stock holders, and if a large company is splitting itself, it can have a profound impact on the market. A company or institution may also choose to divest assets which are nor performing well before they drag the overall investment portfolio down.

The state may also mandate divestiture in order to prevent a monopoly. This is most common when a company wishes to acquire another asset. In the United States, the Federal Trade Commission (FTC) determines whether a company should be required to divest or not. The most famous instance of state mandated divestiture in the United States was the 1984 breakup of the Bell telecommunications group, which formerly controlled the majority of telecommunications in the United States. The FTC mandated the breakup into the American Telephone and Telegraph Company, along with seven smaller subsidiaries of the former Bell empire, identified by their regional affiliation, such as Pacific Bell and Atlantic Bell.

In some cases, divestiture may be undertaken for social or political reasons. In the 1980s, many humanitarian organizations encouraged companies to divest from South Africa, as part of the fight against apartheid. Universities and other public institutions are often encouraged to divest from controversial assets, both to separate themselves from questionable governments and to send a message to the companies and other governments which do business in or with those nations. Extensive divestiture from South Africa may have contributed to the eventual downfall of apartheid, and this wielding of economic power has encouraged other humanitarian organizations to encourage divestiture from nations like Sudan and other human rights violators.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

By Spiffany — On Jun 09, 2011

@Nawaf - You might be right. Divestiture could be used to sell off the more unrelated or underperforming assets to other companies which have primary business interests in those unrelated sectors.

However, I'd think that divestiture should be used cautiously, because selling off parts of a company too hastily - without consideration of its effect on the parent organization and the operations of other assets/departments - could be harmful to the company, even with monetary gains from the sell.

By Nawaf — On Jun 07, 2011

Could divestiture be used to help save us from financial crises?

It seems to me that using divestiture to sell off the more unrelated parts of a company in order to help that company pay off debt would work well, and also provide more diversification in the market of the sold off asset.

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.