1.

Divestiture
1. Motives
1. A firm may divest (sell) businesses that are not part of its core operations so
that it can focus on what it does best
2. To obtain funds by selling part of its firm assets
3. a firm's “break-up” value is sometimes believed to be greater than the value
of the firm as a whole
4. To get rid of under performing division
5. To bring in stability by divesting volatile business
2.  How the Best Divest
1. The Smart Way to Divest
1. Establish a dedicated team
2. Test for Fit and Value
3. Plan for De-Integration
4. Communicate the deal’s benefits for buyers and employees

3. Establish a Dedicated Team

1. The team generally have members with unique skills in Accounting, HR & SLA
Constantly screens their company’s portfolio for divestiture candidates Works on
timing & implementation steps to maximize value
2. Develop divestiture pipeline by screening the company’s portfolio annually Identify
the businesses that may be worth more to others than they are to the company’s
shareholders
3. Maintain a database of potential buyers Approach the divestiture with the same level
of planning & rigor that the acquirer does
4. Example - Textron
1. Ranked 233 rd of Fortune 500 list of largest US Companies and revenue @
>$10Bn.
2. Team with distinctive deal execution capabilities
3. Team maintains database of potential buyers
4. Keep data on other transactions in markets that Textron Competes.
5. Since 2001, It has sold 41 businesses of > $4.4bn revenue & acquired 24
business of $1.4bn
4. II. Test for Fit and value
1. Is keeping the business essential to positioning the company for long term growth &
profitability
2. Whether the business is worth more held in the company’s portfolio than it is
anywhere else
3. To be candidate for divestiture, a business must neither be core to the company’s
strategy nor more valuable to the company than anyone else.
4. Normally companies don’t sell when the conditions are good and don’t wait when the
conditions are not good. This is not best.
5. Ex – Wayerhaeruser And Roche
6. Sell a business while potential acquirer can still extract value from the operations and
take steps to reignite profitable growth Slide
7. Some businesses may not be core, but can still be managed more profitably by
company than any other entity Eg. Disney repurchase of its North American retail
stores.
8. Some businesses may be retained to build competitive advantage in the portfolio.
Eg. Coca-Cola’s heritage fountain business creates distribution advantages for its
soft drinks business
5. III. Plan for De-Integration
 1. Once the company has decided to divest a unit it must determine how best to
separate it out.
1. Do we sell for Cash or Stock?
2. Do we sell the whole business or a piece of it?
3. Who will pay the highest price?
4. Which buyer is better from a strategic point of view?
5. Determine what type of separation will best meet the company’s needs and
implementation steps required to generate the maximum value from the
separation
6. EX – FORD, BELL canada
6. IV. Communicate the Deal’s Benefits to Buyers & Employees
1. What actions should be taken to improve the profitability and growth
2. Expected time period it will take for the buyer to achieve the deal’s full potential value
3. How the value that is unlocked through divestiture be split between buyer and seller
4. How to motivate and inspire people in the business until the deal closes.
5. The best divestors clearly communicate what’s in the deal for all involved