Hiving off: New mantra for retailer

When a business subsidiary is removed from the group company and made into separate entity and at times sets new stake holders for the same, the term is hiving off.

Why to hive off?

The reasons can be any from just to restructure the business organisation to improvising the business growth plan, also to unlock value and increase its focus on the hived off business. For instance, Godrej Group has decided to hive off its retail initiative, Nature’s Basket, into a separate entity. Tanya Dubash, executive director and president, marketing division of Godrej Group, confirming the development said, “We see the Godrej brand and Nature’s Basket doing a two-way equity transfer. We have hit on a very successful model and our same stores sales have grown 50% annually. The decision to hive off this business is to accelerate growth and scale up the business”. Pantaloon Retail, country’s largest retail arm from Kishore Biyani led Future Group is reported to have hived off its retail division, Pantaloon Retail. Pantaloon Retail will be renamed as Future Markets and Consumer Goods Limited.  

For Future Group, the reason is to scale up the business and to give more attention to these subsidiary parts of the group. As informed by Atul Takle, Head, Corporate Communication, Pantaloon Retail, “The name Future Markets and Consumer Goods Limited reflects our business better, since Future Group is not just into retail. FMCG Ltd will be the holding company and will have two subsidiaries – Future Fashion Merchandise Limited, which reflects our apparel line of business, and Future Consumer Enterprises Ltd, which will house all the retail formats. This way, we will be able to focus better and build distinctive identities for each area we are present in”.

The Motivation for Hiving Off

 .

The motivation for hiving off varies from business to business. It mostly takes place under the circumstance when a business enterprise has many branches under one umbrella; the company seeks to make value addition through an increase in efficiency and pruning of non-core or under-performing businesses. At times, to cover up losses, business enterprises adopt the strategy to hive off that specific part of the business. It’s done to refocus on that business so that corrective measures can be taken. The whole operation of hiving off a certain business apart from the main enterprise also helps achieving cost rationalization and economic efficiencies as the underlying parameter of hiving off is to have the new businesses with lower asset base, higher earning potential and quicker returns. The most important benefit of hiving off is that the newly formed undertaking can separately borrow money, enter into new business contracts and acquire property.