3.1.3 Demergers

Question 1

What is a demerger

Answer 1

When a firm decides to split in to different companies

Question 2

What are the key reasons for demergers

Answer 2

1 - Focusing on core businesses
2- Reducing the risk of diseconomies of scale
3 - Raise money from asset sales
4 - Defence Mechanism

Question 3

What is diseconomies of scale ?

Answer 3

When a firm is past their optimum size (too large) therefore increasing average costs in the long run

Question 4

What are the impact on employees following a demerger ?

Answer 4

1 - Changes in compensation , salaries etc as a result of new entities
2 - Oppurtunity to grow as there is incentive to increase skills

Question 5

What are the impacts of consumers following a demerger

Answer 5

1 - Disruption of services : Systems are divided -> delays
2 - Increased choice and competition due to more companies -> lower prices

Question 6

What are the impacts of share holders

Answer 6

Portfolio diversification