Question 12.RQ.2: Identify and discuss four reasons why a business may underta...

Reasons for divestment may include the following:

• A business may decide to focus on its core activities. Any activities that are not regarded as core activities may be sold following such a review. In recent years, a number of businesses have decided, often as a result of bitter experience, that it is better for them to ‘stick to their knitting’.
• A business may receive an unwelcome takeover bid because it has particular operations that are of interest to the predator business. The target business may, therefore, try to sell off these operations in order to protect the rest of its operations from takeover.
• A business may decide that in order to improve its overall profitability, poorly performing operations should be sold. The business may not feel it is worth investing time and resources in trying to improve the level of performance achieved by these poorly performing operations.
• A business may require funds for investment purposes or to deal with cash flow problems. The disposal of certain business operations may be the most feasible solution to these problems.