## Divestment Strategy
### Definition
Divestment involves the sale or liquidation of a portion of business — a major division, profit centre, or Strategic Business Unit (SBU). It is a form of external retrenchment where the organisation removes the troubled segment rather than trying to fix it internally.
> Key identifier: Divestment = External retrenchment. The troubled unit is sold/liquidated; the rest of the organisation survives.
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### Turnaround vs. Divestment
| Feature | Turnaround | Divestment |
|---|---|---|
| Type | Internal retrenchment | External retrenchment |
| Approach | Improve efficiency within | Sell or liquidate the unit |
| Trigger | Internal inefficiencies | External factors (competition, market failure, pandemic, mismatch) |
| Company continues? | Yes — whole company | Yes — minus the divested part |
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### When Is Divestment Adopted?
A divestment strategy may be adopted due to the following reasons:
1. A turnaround has been attempted but proved unsuccessful
2. An acquired business is a mismatch and cannot be integrated into the company
3. Persistent negative cash flows from a particular business create financial problems for the entire company
4. Severity of competition and inability of the firm to cope with it
5. Technological upgradation is required for survival but the firm cannot invest in it
6. A better investment alternative exists — divestment frees capital for higher-return opportunities
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### Part of Rehabilitation Plan
- Divestment is usually part of a rehabilitation or restructuring plan
- The option of turnaround may even be ignored if it is obvious that divestment is the only answer
- Retrenchment sequence: Turnaround → Divestment → Liquidation
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### Key Insight: Divestment Helps the Rest of the Organisation
By divesting the loss-making segment, the company:
- Stops persistent cash drain from affecting profit-making segments
- Frees management attention and capital
- Can redirect resources to high-potential areas