Motives
Firms may have several motives for divestitures.
First, a firm may divest (sell) businesses that are not part of its core operations so that it can focus on what it does best. For example, Eastman Kodak, Ford Motor Company, Future Group and many other firms have sold various businesses that were not closely related to their core businesses.
A second motive for divestitures is to obtain funds. Divestitures generate funds for the firm because it is selling one of its businesses in exchange for cash. For example, CSX Corporation made divestitures to focus on its core railroad business and also to obtain funds so that it could pay off some of its existing debt.
A third motive for divesting is that a firm's "break-up" value is sometimes believed to be greater than the value of the firm as a whole. In other words, the sum of a firm's individual asset liquidation values exceeds the market value of the firm's combined assets. This encourages firms to sell off what would be worth more when liquidated than when retained.
A fourth motive to divest a part of a firm may be to create stability. Philips, for example, divested its chip division called NXP because the chip market was so volatile and unpredictable that NXP was responsible for the majority of Philips's stock fluctuations while it represented only a very small part of Philips NV.
A fifth motive for firms to divest a part of the company is that a division is under-performing or even failing.
A sixth reason to divest could be forced on to the firm by the regulatory authorities, for example in order to create competition.
Read more about this topic: Divestment
Famous quotes containing the word motives:
“The motives to actions and the inward turns of mind seem in our opinion more necessary to be known than the actions themselves; and much rather would we choose that our reader should clearly understand what our principal actors think than what they do.”
—Sarah Fielding (1710–1768)
“We have done scant justice to the reasonableness of cannibalism. There are in fact so many and such excellent motives possible to it that mankind has never been able to fit all of them into one universal scheme, and has accordingly contrived various diverse and contradictory systems the better to display its virtues.”
—Ruth Benedict (1887–1948)
“There seems to be a kind of order in the universe, in the movement of the stars and the turning of the earth and the changing of the seasons, and even in the cycle of human life. But human life itself is almost pure chaos. Everyone takes his stance, asserts his own rights and feelings, mistaking the motives of others, and his own.”
—Katherine Anne Porter (1890–1980)