3.1.3- Demergers

Question 1

What is a demerger?

Answer 1

When a single business is broken into two or more components to operate on their own, be sold, or dissolved

Question 2

What is an example of a demerger?

Answer 2

In 1997, Pepsi announced a demerger of its Pizza Hut, Taco Bell and KFC restaurants to focus on competition with Coca Cola

Question 3

What are the reasons for demergers?

Answer 3

-lack of synergies
-value of the company/share price
-focused companies
-may want to avoid attention from the CMA

Question 4

Why is lack of synergy a reason for demergers?

Answer 4

-fail to make each other more efficient
-managers splitting their time which could lead to diseconomies of scale

Question 5

Why is the value of the company a reason for demergers?

Answer 5

-the value of the separate parts is worth more than the company combined as some parts are operating well but the value is brought down by the lack of success of other parts

Question 6

Why is focused companies a reason for demergers?

Answer 6

-if management are more focused on individual markets, they will be more efficient and successful

Question 7

What are the impacts of demergers on workers?

Answer 7

-separate firms need managers so may be promotions
-job losses could be a result of making the firm more efficient

Question 8

What are the impacts of demergers on firms?

Answer 8

-may be more efficient and lead to more innovation
-smaller so may be a loss of economies of scale

Question 9

What are the impacts of demergers on consumers?

Answer 9

-may be better + cheaper products due to innovation +efficiency
-may be less efficient due to loss of economies of scale so may raise prices or reduce quality/range of products