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CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy

Bharat Textiles Ltd, a mid-sized weaver, finds that its spinning division earns returns well below its cost of capital, while its garment division is growing fast. The board decides to sell the spinning division to a third party and use the proceeds to expand garments. Which restructuring strategy is the board primarily following?

The board is following a divestiture strategy. It sells the underperforming spinning division, which is non-core, and redeploys the proceeds into the growing garment business, thereby sharpening its focus on the core activity rather than merging, integrating backward or doing a buyout.

  1. ADivestiture to refocus on core businessCorrect
  2. BHorizontal merger with a competitor
  3. CBackward integration into raw materials
  4. DLeveraged buyout of the promoters

Explanation

Selling a weak, non-core division and redeploying funds into the strong core business is divestiture aimed at refocusing. A horizontal merger combines with a rival, backward integration would add supply-side units, and an LBO is an acquisition funded by debt; none of these describes the facts.

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