anshultongia

The usual distinction between a divestiture and a spin-off is that a divestiture:

A) is the sale of a subsidiary for cash, whereas a spin-off involves the distribution of shares in the subsidiary to the parent’s existing shareholders.

B) is a simple distribution of shares in the subsidiary to the parent’s existing shareholders, whereas a spin-off involves an exchange of the parent’s shares for shares of the subsidiary.

C) involves the distribution of shares in the subsidiary to the parent’s existing shareholders, whereas a spin-off is the sale of a subsidiary for cash.

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Both actions involve the sale of a subsidiary or some coherent subset of the firm’s assets. In the case of a divestiture, the sale is usually for cash. In the case of a spin-off it involves the distribution of the new firm’s shares to the parent’s existing shareholders

anshultongia

Insofar as reasons for divestitures are concerned, when a firm divests of assets because of reverse synergies, this is most consistent with the rationale of:

A) a lack of profitability.

B) assets no longer fitting the long-term strategy.

C) individual parts being worth more than the whole.

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Whereas synergies imply that the whole is worth more than the sum of the parts, reverse synergies imply that the whole is worth less than the sum of the parts. Therefore, the firm is better off selling the parts to which this applies because they are worth more separately than they are as a part of the firm.

anshultongia

Insofar as reasons for divestitures are concerned, when a firm divests of assets because of a desire to focus on its core business, this is most consistent with the rationale of:

A) individual parts being worth more than the whole.

B) assets no longer fitting the long-term strategy.

C) a lack of profitability.

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A stated desire to focus on the firm’s core business indicates that the assets being sold are not a part of the core business. Thus, the assets no longer fit the long-term strategy.

anshultongia

Insofar as reasons for divestitures are concerned, when a firm divests of assets because of rising costs or a change in consumer tastes, this is most consistent with the rationale of:

A) assets no longer fitting the long-term strategy.

B) individual parts are worth more than the whole.

C) a lack of profitability.

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Changes in consumer tastes imply that sales are below expectations, while rising costs are self-explanatory. In either case, this seems to indicate that profitability objectives are not being met.