Divestiture

What kinds of divestiture are there?

There are three basic types of divestiture: sell-offs, spin-offs, and split-ups. Some of these may necessitate continuing involvement—a strategy referred to as a satellite launch.

A sell-off, by far the most common type of divestiture (and usually referred to as a divestiture), is the sale of one or more company units to another company.

A spin-off is a series of transactions through which a company divests or “spins off” one or more units—typically a small portion of its business with some common theme—by turning them into an independent company and selling the company’s shares to the investing public.

Spun-off units may be sold in separate spin-offs or may be combined into a single spin-off. This process usually begins with a pro rata distribution of stock to shareholders in the form of a special dividend, followed by (or combined with) an initial public offering of the unit’s shares. A common type of spin-off is the IPO carve-out in which the company goes straight to the IPO without the distributions to stockholders. If the parent retains interest in an IPO carve-out, this may be termed a divestiture IPO.

A split-up is the breakup of a company into two or more separate companies. It is different from a sell-off or a spin-off because it involves the entire company, not just a unit or two.