3.1.3

Question 1

define demergers

Answer 1

a process in which a company spins off one or more of it’s business units or divisions as seperate entities

Question 2

wha are the reasons for demergers?

Answer 2

• focusing on core business: offloading underperfomring units in theory should incresae profit margins, maximisaing return to shareholders
• **reducing the risk of diseconomies of scale ** (diagram) bringing LRAC back down to minimum point necause firm is too large and complex
• **raising money from asset sales ** jj
• ** defensive tactic to avoid attention from regulators **

Question 3

what is the impact of demergers on employees?

Answer 3

• uncertainity regarding job security: some positions may no longer be needed in new entities leading to potential layoffs (rationalisation)
• opportunities for personal growth and development: demergers can bring on new roles to take up, devleoping skills

Question 4

what is the impact of demergers on consumers?

Answer 4

• increased competition between the two new entities: long run lower prices and better quality
• loss of economies of scale: higher unit costs passed on down

Question 5

what is the impact of dermergers for the firm?

Answer 5

• higher returns/ coz more rationalized, streamline, efficent business
• financial cost of selling off assets at lower price
• Spun-off Entity: The spun-off entity may have the opportunity to thrive independently, potentially attracting new investors and partners. However, it may also face challenges in establishing its operations and management.

Question 6

define rationalisation

Answer 6

Reorganising production in order to increase productivity and efficiency.

Question 7

what is go to example for demerger?

Answer 7

ebay demerged from paypal in 2014