Corporate divestiture is the disposing or relinquishing of a company’s ASSETS or a portion of its business by way of sale, exchange, or liquidation. A CORPORATION may want to sell off a poorly performing division or spin off a subsidiary company through an exchange of stock with SHAREHOLDERS, or it may be forced to liquidate assets as a result of legal action. A sell-off is one of the most common types of divestiture, where the divesting company sells a division or subsidiary to a third party for cash or some other asset such as stock. Companies usually sell off under-performing parts of the company and use the proceeds to strengthen other areas of the business. Likewise, if a company is experiencing financial trouble, it may decide to sell a segment of the business in order to generate INCOME. Sometimes the business area is too small to sustain itself as an independent company and must be sold to another party. This leads to the second form of divestiture, a spinoff, which occurs when a parent company creates a new, independent company from a subsidiary company or division. Shareholders of the parent company are issued stock in the newly formed company to compensate for the asset loss of the parent company. This also serves the dual purpose of shifting some of the investment responsibility and risk away from the parent company and places it on the shareholders’ shoulders. Additionally, debt from the parent company can be transferred to the spin-off company during its creation. A spin-off can improve the overall operations of both companies by reducing red tape and overhead costs, allow each company to focus on their PRIMARY MARKETS, and give greater freedom to the management of the spun-off company. There is also a modified version of a spin-off known as a split-off. The two are very similar; however, unlike a spin-off, where all the shareholders receive shares in the new company, in a split-off shareholders can choose if they want to exchange the shares they own in the parent company for shares in the new company, although sometimes exchange is mandatory. This exchange of shares is often done on an unequal basis. For instance, a shareholder may receive two shares in the new company for each exchange share of the parent company. Finally, there is the case of liquidation, also known as a split-or break-up. A split-up occurs when a parent company exchanges all of its shares for a stake in two or more subsidiary companies. This is then followed by the liquidation of the parent company. This arrangement is typical in antitrust cases, when a split-up is used to break up a company into individual and independent companies. During the late 1980s there was a growing trend among companies to diversify operations and expand into new markets. However, some companies found they had spread themselves too thin and were no longer competitive in all areas of their business. Thus, in the 1990s there was a growing amount of corporate divestiture as companies tried to refocus their businesses on core competencies. For example, in 1997 PepsiCo decided to spin off three fastfood restaurants in an effort to focus more on its “core” soft-drink and snack-food business lines. This action was in part prompted by PepsiCo investors who believed Pepsi had expanded in too many directions and wanted to see the company reorganize its business. While not as common as a spin-off or sale, a break-up is often more widely publicized in the general press, usually because of its association with litigation and antitrust cases. For example, in 2000 one of the proposed solutions in the Microsoft antitrust case was to split the company into two new companies. One company would focus on operating systems, while the other would focus on software. After the new companies had formed, the “original” Microsoft would be liquidated, ceasing to exist as a company. Shareholders of the original Microsoft were to be issued stock in both of the newly formed companies. However, this plan never came to fruition, and at the close of 2001 Microsoft continued to operate as normal. Divestiture works as a foil against excessive growth and expansion and as a counterbalance to MERGERS AND ACQUISITIONS. Companies will always try to improve their businesses, often through trial and error. When companies find they have overextended their operations, become too large, or have come to the attention of government watchdogs, they will often rely on these different divestment strategies to make their businesses more efficient, easier to manage, or complaint with legal regulations. Aaron S. Jones