3.1.3 - Demergers

Question 1

Reasons for demergers

Answer 1

• To reduce diseconomies of scale.
• by demerging, both firms can separate and specialise in their own goods/services, increasing productivity and quality, decreasing costs and increasing sales, and increasing firm profits.
• Value of the company/share price: Some companies demerge because the value
  of the separate parts of the company is worth more than the company combined.
  This is because some parts of the business are operating well and have potential to
  grow but the overall value is brought down because of the lack of success or lack of
  potential for growth of other parts of the business.

Question 2

Impacts of workers by demergers

Answer 2

Workers could gain or lose through a demerger. Separate firms may need
their own managers and leaders so people could get a promotion. However, the
goal of making the firm more efficient may result in job losses.

Question 3

Impact on business

Answer 3

: Concentrating on a smaller core business may enable it to be more
efficient and concentration may lead to more innovation and surviving higher
competition. However, the smaller size of the business could lead to a loss of
economies of scale and reduce efficiency.

Question 4

Impact on consumers

Answer 4

They may gain from innovation
and efficiency, leading to better products and cheaper prices . However, demerged
firms may be less efficient through loss of economies of scale or raise prices/reduce
quality or range of goods as they become motivated by profits.

Question 5

what are demergers

Answer 5

A demerger is a business strategy in which a single business is broken into two or more
components, either to operate on their own, to be sold or to be dissolved.