Equity Disinvestment 

Equity disinvestment, also known as divestment or equity dilution, refers to the process of selling or reducing the ownership stake in a company by its existing shareholders, including the government in the case of public sector enterprises. This can happen through various means, and the primary objective is often to raise funds, improve financial performance, or change the ownership structure of the company.

Milton Friedman, a prominent economist, emphasized the importance of private ownership and free markets. His views align with the principles that often underlie equity disinvestment processes, especially in the context of reducing government ownership in enterprises.

Here are some common methods of equity disinvestment:

Public Offerings (IPOs):

Companies can opt for an Initial Public Offering (IPO), where they issue shares to the public for the first time. This allows existing shareholders to sell their shares to the public.

Secondary Offerings:

Existing shareholders, including promoters and institutions, may sell their shares on the secondary market (stock exchange) to other investors. This is a common method for achieving equity disinvestment.

Strategic Sale:

In a strategic sale, a significant portion of the equity is sold to a strategic investor or another company. This can lead to a change in control or ownership structure.

Repurchase of Stock:

The business has the option to purchase back its own shares from current owners. As a result, fewer shares are outstanding overall, and the remaining shareholders' ownership proportion rises.

Plans for employee stock options (ESOPs):

Employers can use ESOPs to provide their staff members shares so they can own stock. This may qualify as equity disinvestment, particularly if current shareholders sell a portion of their ownership to finance the ESOP.

Government Disinvestment:

In the case of government-owned enterprises, disinvestment refers to the sale of a part of the government's equity stake in the company. This is often done to raise funds, improve efficiency, and encourage private sector participation.

A strategic financial move known as equity disinvestment is taken by governments or businesses for a number of reasons, such as meeting regulatory requirements, lowering debt, increasing liquidity, or obtaining funds for expansion.

For early investors or founders hoping to recoup their investment, it can also offer an exit plan. 

A company's ownership dynamics, governance framework, and financial health can all be significantly impacted by equity disinvestment. For this reason, the time and technique of the disinvestment process are carefully considered.