3.1.3 demergers

Question 1

What are demergers?

Answer 1

Occur when firms sell of parts of the firm/ the business is broken into two or more parts.

Question 2

What are the reasons for demergers?

Answer 2

• to focus on core business and develop that to gain benefits of specialisation
• to raise finance by selling shares
• to avoid diseconomies of scale
• to preserve the value of the company
• to avoid attention from the CMA

Question 3

What are the impacts of demergers on businesses?

Answer 3

• allow focus on the core of the business = more innovation
• raises funds by selling parts of the businesses
• removes loss-making areas of the business
• loss of economies of scale and reduced efficiency

Question 4

What are the impacts of demergers on workers?

Answer 4

• increased job security is loss-making areas are removed
• reduced conflict between different cultures
• increased focus on the business = more profitable, higher wages
• some may lose their jobs in the process

Question 5

What are the impacts of demergers on consumers?

Answer 5

• greater competition leads to lower prices
• more focussed business are able to meet consumer needs
• service provided may be limited
• increased innovation and efficiency = better quality and lower prices = higher utility
• loss of economies of scale = higher prices, reduced quality or range of goods