Define: Divestiture

An order to an offending party to rid itself of property; it has the purpose of depriving the defendant of the gains of wrongful behaviour.

Divestiture is the sale or disposition of a business by a company and may occur for various reasons. Sometimes a divestiture results simply from a company’s desire to rid themselves of a poorly performing business. In other cases, a company will decide a business no longer fits its strategic objectives and is thus a suitable candidate for divestiture. More positively, a divestiture may result from a company’s decision that it can maximize shareholder value from a successful business by letting it stand alone (although in this case “spinoff” is more commonly used than divestiture).

A divestiture may also result from a court order, such as the divestiture of ATT of its local operating subsidiaries in the 1980s. A corporate divestiture often requires the services of an investment bank to assure the best price is achieved for the asset. From an accounting viewpoint, a divestiture may be categorized as discontinued operations, which requires special accounting treatment.

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This glossary post was last updated: 29th March, 2024.