In finance Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money, and risk and how they are interrelated. It also deals with how money is spent and budgeted and economics Economics is the social science that is concerned with the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current, divestment or divestiture is the reduction of some kind of asset In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simplistically stated, assets represent ownership of value that can be converted into cash . The balance sheet of a firm for either financial or ethical objectives or sale of an existing business by a firm. A divestment is the opposite of an investment Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument. It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and.

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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 Eastman Kodak Company is a multinational US corporation which produces imaging and photographic materials and equipment. Long known for its wide range of photographic film products, Kodak is re-focusing on two major markets: digital photography and digital printing, Ford Motor Company The Ford Motor Company is an American multinational corporation based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford, Lincoln, and Mercury brands, Ford also owns Volvo Cars in Sweden, and a small stake in Mazda in Japan and Aston Martin in the UK. Ford', 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 CSX Corporation was formed in 1980 by the merger of Chessie System and Seaboard Coast Line Industries and eventually merged the various railroads owned by those predecessors into a single line that became known as CSX Transportation. Based in Richmond, Virginia, USA after the merger, in 2003 headquarters moved to Jacksonville, Florida. The 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 Koninklijke Philips Electronics N.V. , most commonly known as Philips, (Euronext: PHIA, NYSE: PHG) is a multinational Dutch electronics corporation, for example, divested its chip division called NXP NXP Semiconductors is the name for the new semiconductor company founded by Philips as announced by its then-CEO Frans van Houten to its customers and employees in Berlin on August 31, 2006 and to the global media the next day 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 underperforming or even failing.

Divestment for financial goals

Often the term is used as a means to grow financially in which a company sells off a business unit in order to focus their resources on a market it judges to be more profitable, or promising. Sometimes, such an action can be a spin-off The common definition of spin-out is when a division of a company or organization becomes an independent business. The "spin-out" company takes assets, intellectual property, technology, and/or existing products from the parent organization. (For the United States); Divestment of certain parts of a company can occur when required by the Federal Trade Commission The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. Its principal mission is the promotion of "consumer protection" and the elimination and prevention of what regulators perceive to be harmfully "anti-competitive" business practices, before a merger with another firm is approved. A company can divest assets to wholly owned subsidiaries.

The largest, and likely most-famous, corporate divestiture in history was the 1984 U.S. Department of Justice The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries-mandated breakup of the Bell System The Bell System was the American Bell Telephone Company and AT&T led organization that provided telephone service in the United States from 1877 to 1984, at various times as a monopoly. In 1984, a Federal mandate broke the company up into separate companies into AT&T AT&T Inc. is the largest provider of fixed telephony in the United States, and also provides broadband and subscription television services. AT&T is the second largest provider of mobile telephony service in the United States, with over 85.1 million wireless customers, and more than 210 million total customers and the seven Baby Bells The Regional Bell Operating Companies are the result of the U.S. Department of Justice antitrust suit against the former American Telephone & Telegraph Company (later known as AT&T Corp.) On January 8, 1982, AT&T Corp. settled the suit and agreed to divest ("spin off") its local exchange service operating companies. Effective.

Method of divestment

Some firms are using technology to facilitate the process of divesting some divisions. They post the information about any division that they wish to sell on their website so that it is available to any firm that may be interested in buying the division. For example, Alcoa has established an online showroom of the divisions that are for sale. By communicating the information online, Alcoa has reduced its hotel, travel, and meeting expenses.

With Economic liberalization of the Indian economy The economy of India is the twelfth largest economy in the world by nominal value and the fourth largest by purchasing power parity . In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and, Ministry of Finance of India had set up a separate Department of Disinvestments.

References

External links

See also

Corporate finance Corporate finance is an area of finance dealing with financial decisions business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the and investment banking An investment bank is a financial institution that assists corporations and governments in raising capital by underwriting and acting as the agent in the issuance of securities. An investment bank also assists companies involved in mergers and acquisitions, divestitures, etc. Further to provide ancillary services such as market making and the
Capital structure In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% Senior secured debt A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain · Senior debt In finance, senior debt, frequently issued in the form of senior notes or referred to as senior loans, is debt that takes priority over other unsecured or otherwise more "junior" debt owed by the issuer. Senior debt has greater seniority in the issuer's capital structure than subordinated debt. In the event the issuer goes bankrupt, · Second lien debt Second Lien Loan is a form of loan with a security interest in the assets of a company that are second in ranking behind a traditional senior credit facility. A lien is a form of security interest granted over an item of property to secure the payment of a debt · Subordinated debt In finance, subordinated debt is debt which ranks after other debts should a company fall into receivership or be closed · Mezzanine debt Mezzanine capital, in finance, refers to a subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt or preferred stock · Convertible debt In finance, a convertible note is a type of bond that the holder can convert into shares of common stock in the issuing company or cash of equal value, at an agreed-upon price. It is a hybrid security with debt- and equity-like features. Although it typically has a low coupon rate, the instrument carries additional value through the option to · Exchangeable debt In finance, an exchangeable bond is a straight bond with an embedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary or company in which the issuer owns a stake) at some future date and under prescribed conditions. An exchangeable bond is different from a convertible bond. A convertible bond gives · Preferred equity Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument. Preferreds are senior to common stock, but are subordinate to bonds · Warrant In finance, a warrant is a security that entitles the holder to buy stock of the issuing company at a specified price, which can be higher or lower than the stock price at time of issue · Shareholder loan Shareholder loan is a debt-like form of financing provided by shareholders. Usually, it is the most junior debt in the company's debt portfolio, and since this loan belongs to shareholders it should be treated as equity. Maturity of shareholder loans is long with low or deferred interest payments. Sometimes, shareholder loan is confused with a · Common equity The stock or capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in · Pari passu In law, this term is commonly used as legal jargon. Black's Law Dictionary defines pari passu as "proportionally; at an equal pace; without preference."
Transactions (terms / conditions)
Equity offerings The stock or capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in Initial public offering (IPO) An initial public offering referred to simply as an "offering" or "flotation," is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to · Secondary Market Offering (SEO) A follow-on offering is an issuance of stock subsequent to the company's initial public offering. A follow-on offering can be either of two types (or a mixture of both): dilutive and non-dilutive (as rights issue). Furthermore it could be a cash issue or a capital increase in return for stock · Follow-on offering A follow-on offering is an issuance of stock subsequent to the company's initial public offering. A follow-on offering can be either of two types (or a mixture of both): dilutive and non-dilutive. A secondary offering is an offering of securities by a shareholder of the company (as opposed to the company itself, which is a primary offering). A · Rights issue Under a secondary market offering or seasoned equity offering of shares to raise money, a company can opt for a rights issue to raise capital. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a · Private placement A '''private placement''' is a funding round of securities which are sold without a initial public offering, usually to a small number of chosen private investors. In the United States, although these placements are subject to the Securities Act of 1933, the securities offered do not have to be registered with the Securities and Exchange · Spin off The common definition of spin-out is when a division of a company or organization becomes an independent business. The "spin-out" company takes assets, intellectual property, technology, and/or existing products from the parent organization · Spin out The common definition of spin-out is when a division of a company or organization becomes an independent business. The "spin-out" company takes assets, intellectual property, technology, and/or existing products from the parent organization · Equity carve-out · Greenshoe A greenshoe , also known by legal title as an "over-allotment option" (the only way it can be referred to in a prospectus), gives underwriters the right to sell additional shares in a registered securities offering, at the offering price, if demand for the securities is in excess of the original amount offered. The greenshoe can vary in (Reverse A Reverse Greenshoe is a special provision in an IPO prospectus, which allows underwriters to sell shares back to the issuer. If a 'regular' greenshoe option is, in fact, a call option written by the issuer for the underwriters, a reverse greenshoe is a put option) · Book building Categories: Corporate finance | Stock market | Financial terminology | · Bookrunner In investment banking, a bookrunner is usually the main underwriter or lead-manager/arranger/coordinator in equity, debt, or hybrid securities issuances. The bookrunner usually syndicates with other investment banks in order to lower its risk. The bookrunner is listed first among all underwriters participating in the issuance. When more than one · Underwriter Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage, or credit). The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea
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