Value Creation from Divestitures  617
components, as well as software, to carmakers) to Continental. In 2013, it spun 
off its OSRAM lighting division. Siemens merged its wind-power business 
with Spain’s Gamesa in 2017, creating a new industry leader. The health-care 
business was carved out in 2018 as Siemens Healthineers in a minority initial 
public offering (IPO), one of the largest public offerings in German history. In 
May 2019, Siemens announced plans to spin off its gas and power division 
by 2020 as an independent company with about €30 billion in revenues. After 
2020, Siemens’s core businesses will be Digital Industries (industrial software 
and automation) and Smart Infrastructure (systems for safety and security, 
grid control, and energy storage). The series of transactions radically oriented 
the group’s portfolio toward the business areas that the company considers 
more attractive in the long term.10 Siemens demonstrated that it earmarks for 
divestment not only underperforming businesses (such as gas and power) 
but also other businesses (such as health care) that no longer fit well with its 
corporate strategy.
The process of systematic divestment is natural and ongoing, as the Sie-
mens example highlights. A divested unit may pursue further separations later 
in its lifetime, especially in dynamic industries undergoing rapid growth and 
technological change. For example, in 2007, Tyco International split itself into 
three independent listed businesses: Tyco Healthcare (Covidien), Tyco Elec-
tronics (TE Connectivity), and Tyco International. In 2012, Tyco International 
split itself again into three independent businesses: Tyco (commercial security 
and fire protection), Pentair (flow-control products), and ADT (residential se-
curity). The process did not stop there. TE Connectivity sold its BroadBand 
Network Solutions business to Commscope in 2015. Covidien, which primar-
ily focused on medical devices, spun off Mallinckrodt, its pharmaceutical divi-
sion, in 2013. ADT merged with home-security company Protection 1 in 2016.
Divesting a business unit creates value when other owners can extract 
more value from it than the current owners can. This is the “best owner” prin-
ciple described in Chapter 28. Value creation occurs because a new owner can 
realize superior synergies, but also because the divestiture eliminates some 
unique costs of the business unit itself and/or its current owner. An active 
portfolio management approach creates value by avoiding, eliminating, or at 
least minimizing these costs.
The Costs of Holding On
For underperforming businesses, the clear benefit from divesting lies in avoid-
ing the direct costs of bearing deteriorating results. Companies that hold on 
to underperforming businesses too long risk bringing down the value of the 
10 The portfolio change included many other divestments (and acquisitions), such as the sale of, for 
example, the audiology business and the household appliance business.