B2 Demergers

Question 1

Define de-merger

Answer 1

When a firm decides to split into separate firm

Question 2

Reasons to de-merge

Answer 2

1. Focus on core competencies
2. Unlock value
3. Regulatory requirements
4. Strategic restructuring

Question 3

Advantage and disadvantage of demerger to workers

Answer 3

AD :1. Separate firms may need their own manager and workers so some could get a promotion

DA:
1. more efficient, reducing AC, may lead to job loss
2. Disruption uncertainty may affect motivation and productivity

Question 4

Demerger for business ad and da

Answer 4

AD:
1. More efficient from focusing on core business
2. May lead to more innovation and surviving higher levels of competition due to greater specialisation and efficiency

DA:
1. Smaller size of business lead to loss of economies of scale, reducing efficiency

Question 5

Demerger for consumers, ad and da

Answer 5

AD:
1. May gain from innovation and efficiency, leading to better products and cheaper prices

DA:
1. Less efficient through reduced economies of scale
2. May raise price/ reduce quality of range of goods as they motivated by profit