3.1.3

Question 1

What’s a demerger?

Answer 1

When a firm breaks up into 2 or more separate businesses.

Question 2

Name 2 reasons for demergers

Answer 2

• Source finance to pay loans
• Source finance to reinvest
• Prevent government intervention (monopoly) power
• Increase share price - separate firms will be worth more then original

Question 3

Name an impact of demergers on businesses

Answer 3

• More efficient production processes
• Reduction in dis-economies of scale
• Greater independence

Question 4

Name an impact of demergers on workers

Answer 4

• Better worker relations
• More jobs required
• Workers may lose morale

Question 5

Name an impact of demergers on consumers

Answer 5

• Improved consumer choice
• Consumer needs more likely to be met since smaller firms