Disinvestment Disinvestment, sometimes referred to as divestment, refers to the use of a concerted economic boycott, with specific emphasis on liquidating

stock, to pressure a government, industry, or company towards a change in policy, or in the case of governments, even regime change. The term was first used in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott designed to pressure the government of South Africa into abolishing its policy of apartheid. The term has also been applied to actions targeting Iran, Sudan, Northern Ireland, Myanmar, and Israel. What Does Disinvestment Mean? 1. The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture".

2. A reduction in capital expenditure, or the decision of a company not to replenish depleted capital goods.

Investopedia explains Disinvestment 1. A company or government organization will divest an asset or subsidiary as a strategic move for the company, planning to put the proceeds from the divestiture to better use that garners a higher return on investment.

2. A company will likely not replace capital goods or continue to invest in certain assets unless it feels it is receiving a return that justifies the investment. If there is a better place to invest, they may deplete certain capital goods and invest in other more profitable assets.

Alternatively a company may have to divest unwillingly if it needs cash to sustain operations In finance and economics,divestmentor divestitureis the reduction of some kind of assetfor either financial or ethical objectives or sale of an existing business by a firm. A divestment is the opposite of aninvestment. 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 , 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, example in order to create competition.

Methods of disinvestment Strategic sale: For example say u have company Reliance which has many other business such as Chemicals, Construction, Retail etc. then in this only it s Chemicals business is going well and it s retail business

is going down then he will sell-off the whole retail business to infuse money in it s good going business Chemicals

Capital markets:

Through ipo or private placement to corporate Example of private placement Say maruti buys a stake of 40% in the Hero Honda motors Reduction in Equity Buy back of shares .i.e buying back the shares from the market or from the company to whom it is issued in case of private placement through an offer of price per share over and above the market price or say at Premium Conversion of shares into other instruments Trade sale In this a company does it so to acquire profits from the business buy selling the

whole business to the one making offer. It is different from strategic sale as in this case whole company say from above example Reliance is sold not only his one business. Asset sale and winding up s losses may sell all it s asset and wind up[

In this case the company to cover it the company to pay losses.

Management or employee buyout In this case the management of company or it s employees buy out the company

shares in the proportion of their contribution given to buy the shares. De-merger or spin-off Spin-off A spin-out refers to a type of corporate action where a company "splits off" sections of itself as a separate business. 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. Many times the management

team of the new company are from the same parent organization. Often, a spin-out offers the opportunity for a division to be backed by the company but not be affected by the parent company's image or history, giving potential to take existing ideas that had been languishing in an old environment and help them grow in a new environment. In most cases, the parent company or organization offers support doing one or more of the following:

investing equity in the new firm,

being the first customer of the spin-out (helps to create cash flow),

providing incubation space (desk, chairs, phones, internet access, etc.) or

providing services such as legal, finance, technology, etc. All the support from the parent company is provided with the explicit purpose of helping the spinout grow. Demerger In this case a company forming a subsidiary under it s head which gives diret ownership to it s shareholder s of parent company .For example,Tata motors

have subsidiary making it s autoparts component which it demerges and forms as a separate entity in this case upon it s conversion from subsidiary to main

company every shareholder of Tata Motors co. will receive a share in proportion decided by company against shares hold in Tata motors.