3.1.3 - Demergers

Question 1

What Is A Demerger?

Answer 1

When a firm sells off at least one of the businesses it owns, or splits itself into separate parts to create two or more firms.

Question 2

What Are Some Reasons For Why Businesses May Demerge?
(4 Points)

Answer 2

~ Reduce DEOS.

~ Increase the businesses focus.

~ Comply with the demands of the competition commission.

~ Increase liquidity and dividend payments.

Question 3

What Are The Impacts Of Demergers On Businesses?
(4 Points)

Answer 3

~ Opportunity for a more narrow focus on the core business, enabling efficiency and more innovation.

~ Removing loss-making portions of the business.

~ Can lead to lower costs.

~ However, can lead to a loss of EOS, reducing efficiency.

Question 4

What Are The Impacts Of Demergers On Workers?
(4 Points)

Answer 4

~ Smaller workforce provides more opportunity for promotions.

~ Some workers can loose their jobs, due to more efficient practises.

~ Improved efficiency due to less complication in daily tasks.

~ Reduced friction from cultural differences can help build better team dynamics.

Question 5

What Are The Impacts Of Demergers On Consumers?
(3 Points)

Answer 5

~ May gain from innovation and efficiency leading to better quality products and cheaper prices.

~ If unsuccessful, a narrower range of products at worse quality.

~ However due to the loss of EOS could cause the businesses to be less efficient.