Organizations may pursue a divestiture, spinoff or partial divestiture (also referred to as a carveout) for any number of reasons. From an accounting perspective, each of these terms means something different.
A divestiture typically refers to a company disposing of an entire line of business or separate subsidiary that is usually defined as a business. A carveout usually entails the disposition of a portion of a business that will require carving out of a separate subsidiary or line of business. A spinoff constitutes a transfer of assets that make up a business by one entity into a new legal spun-off entity, followed by a distribution of the shares of the new entity to its shareholders without them surrendering any stock of the original entity.
The COVID-19 pandemic has amplified and, in some cases, accelerated these decisions, causing organizations to rethink strategic directions and streamline their assets to focus on those with the most significant long-term value. To identify the accounting consequences of each decision, click here.