3.1.3 Demergers Flashcards
1
Q
What is a demerger?
A
When one large firm is broken into two or more smaller firms i.e. the opposite of a merger
2
Q
Why would a company choose to do a demerger?
A
- strategic focus
- higher valuations for individual businesses (they become more attractive for investors)
- enhanced efficiency
- market pressures could force companies to demerge (shareholder demands, regulatory changes)
- to isolate risks
- to get tax benefits
3
Q
What is the impact of demergers on parent companies
A
- increased focus
- improved financial performance
- higher stock price
4
Q
What is the impact of demergers on the spun-off entity?
A
- could attract new investors and partners
- could thrive independently
- could face challenges in establishing its operations and management
5
Q
What is the impact of demergers on the workers of the parent company?
A
- changes in their roles, responsibility and working conditions
- job uncertainty/cuts
6
Q
What is the impact of demergers on workers of spun-off entities?
A
- changes in their roles, responsibilities and working conditions
- increased autonomy
- increased focus on their operation
7
Q
What are the impacts of demergers on the customers of the parent company?
A
- limited changes
- better goods/services in the long run (if company’s focus is enhanced)
8
Q
What are the impacts of demergers on customers of the spun-off entity?
A
- changes in branding, customer service and product offerings
9
Q
What are the impacts of demergers on investors in the parent company?
A
- may initially see changes in the stock price
- long term impact on stock prices depends on the success of the demerger
10
Q
What are the impacts of demergers on investors in the spin-off entity?
A
- fluctuations in stock prices
- may have different expectations regarding the new company’s growth potential
