Business Definition for: divestiture
divestiture
disposition of an asset or investment by outright sale, employee purchase, liquidation, and so on.
Also, one corporation's orderly distribution of large blocks of another corporation's stock, which were held as an investment. Du Pont was ordered by the courts to divest itself of General Motors stock, for example.
divestiture
sale of an asset to achieve a desired objective. A bank may sell branch offices, or even an entire operating division, to cut operating expenses or carry out its business plan for long-term growth. In a merger with another bank, it may be required to sell branches to gain the approval of state or federal banking supervisors. Assets sold without recourse are taken off the selling bank's balance sheet and transferred to the purchaser. In accounting terms, the sale is treated as a nonrecurring gain (or loss).
See also
asset sales
,
antitrust laws
divestiture
- loss or voluntary surrender of a right,
title
, or interest.
-
remedy
by which the court orders the offending party to rid itself of assets before the party would normally have done so. This remedy is sometimes used in the enforcement of the
antitrust laws
, whereby a corporation must shed a part of its business to comply with the law.
Related Terms:
nonrecourse sale of bank receivables to a third party, either through the sale of whole loans or whole pools of loans, or securitization, that is, issuing securities collateralized by the receivables of bank credits (residential mortgages, auto loans, leases, credit card receivables). Accounting treatment of asset sales is complicated, and determines whether a transaction is a sale of assets. In general terms, the test of an asset sale is whether the seller gives the buyer control over the assets transferred, and also any residual interest, without recourse to the seller. Transfers with recourse-allowing the buyer to resell a portion of the assets back to the seller-are treated by Financial Accounting Standards Board Rule 77 as a financing rather than a sale of assets.
If the agreement requires the seller to take back any bad loans, it is not considered for accounting purposes a true sale of assets and the seller cannot deduct the value of loans sold from its loan portfolio.
federal laws designed to improve market efficiency, encourage competition, and curtail unfair trade practices. This is accomplished by reducing barriers to entry, breaking up monopolies, and preventing conspiracies to restrict production or raise prices. There are three major antitrust laws: the sherman antitrust act of 1890, clayton antitrust act of 1914, and Federal Trade Commission Act of 1914.
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Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
