What are some motives for divestitures?

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What are some motives for divestitures?

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What are some motives for divestitures?

Explanation & AnswerSolution by a verified expert

Explanation

Following are the motivations for divestitures-

The divesting company sees an increase in share price on the day of the announcement. This increase in share price is because the target company is generally acquired at a premium by the acquiring company.
Divestitures result in better operating performance due to operating synergies produced in a merger. Both the acquiring and the target company gain more productivity and efficiency. For Example, when one firm's management is better than another firm, the other firm's assets are now managed by better management after the merger. Better management of assets leads to efficiency.

Verified Answer

The main objectives of divestitures are:

Divesting company sees an increase in share price on the day of the announcement.
Divestitures result in better operating performance for both the parent and the divested company.

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