613 32 Divestitures* Divestitures, like mergers and acquisitions, tend to occur in waves, as Exhibit 32.1 shows. In the decade following the conglomerate excesses of the 1960s and 1970s, many companies refocused their portfolios. These divesti- tures were generally sales to other companies or private buyout firms. By the 1990s, divestiture activity included more public-ownership transactions— spin-offs, carve-outs, and tracking stocks. Such public-ownership transactions have since become an established divestment approach, although most dives- titures still take the form of deals between companies. As Chapter 28’s discussion of corporate portfolio management indicates, any program to create value should include systematically reviewing your portfolio of businesses. In our analyses of the largest global exchange-listed companies, those that endure at the top ranks combine their mergers and ­acquisitions (M&A) programs with selected divestitures, including shedding businesses performing well that could do better under different ownership. Evidence shows that divestitures lead to higher shareholder returns in the short term around their announcement, as well as in the years following the divestiture, especially for companies employing such a balanced portfolio approach. Still, many executives shy away from actively pursuing divestitures as part of a value creation program. Moreover, many divestitures still occur not as an expression of a strategic plan but in reaction to pressure from outside the corporation. For example, in 2017, AkzoNobel announced the divestiture of its specialty chemicals business when faced with an activist-investor campaign and a takeover attempt by competitor PPG. *Special thanks to André Annema for coauthoring this chapter. 614  Divestitures This chapter first presents the evidence that divestitures create value and the factors that go into creating that value. Then it discusses why, despite this evidence, executives often shy away from proactively pursuing divestitures. The next section shows how to assess a divestiture’s value creation potential. The final section provides some guidance on how to choose the specific type of transaction for a divestiture. Exhibit 32.1  Divestitures Volume vs. M&A Volume $ billion1 Divestitures2 Mergers and acquisitions Public-ownership transactions 143 1990 104 1991 96 1992 136 1993 166 1994 266 1995 311 1996 445 1997 442 1998 673 1999 947 2000 630 2001 496 2002 501 2003 726 2004 988 2005 1,272 2006 1,650 2007 977 2008 650 2009 908 2010 926 2011 1,025 2012 1,182 2013 1,419 2014 1,664 2015 1,277 2016 1,135 2017 1,560 2018 1990 189 1991 153 1992 123 1993 125 1994 223 1995 469 1996 608 1997 829 1998 1,599 1999 2,126 2000 1,868 2001 799 2002 507 2003 569 2004 796 2005 1,173 2006 1,369 2007 1,609 2008 1,167 2009 835 2010 743 2011 801 2012 690 2013 671 2014 1,130 2015 1,503 2016 1,306 2017 1,168 2018 1,388 Private-ownership transactions 1 Transactions with deal value above $50 million. Deals involving U.S. or European target and/or acquirer. 2 Divestitures include sales of equity stakes >50%, business unit sales, asset sales, and public-ownership transactions (spin-offs, carve-outs, split-offs). Source: Securities Data Company; Dealogic; Corporate Performance Analysis by McKinsey.