Stranded Costs
Costs that remain at the parent company after a carve-out but which were previously allocated to the divested business, creating a cost gap.
Also known as: Orphan costs, Retained overhead
One-line definition
Stranded costs are overheads that cannot be eliminated at the parent even after the business is sold, because they relate to a fixed cost base that was shared.
Example
A group had one CFO serving three divisions. After selling one division, the CFO's cost remains — a partial-year allocation is gone, but the full salary stays.
Why it matters
Acquirers of the carved-out entity use stranded costs to negotiate a lower price (the parent is paying too much; therefore the business was over-allocated shared costs).
Related terms
Carve-Out
A transaction where a division or business unit is separated from its parent company and sold or listed as a standalone entity.
Separation Costs
One-time costs incurred to separate a carved-out business from its parent, including IT system separation, legal restructuring, and third-party service contracts.