Demergers

Question 1

What is a demerger?

Answer 1

A demerger occurs when a firm decides to split into separate firms.

Question 2

What are reasons for demergers?

Answer 2

Focusing on the cor business to cut costs and therefore improve profit margins and returns to shareholders.
Reduce the risk of diseconomies of scale of score by reducing the range of functions in a business and achieve lower management costs.
Raises money from assets sales and return it to shareholders.
A defensive tactic to avoid the attention of competition authorities who might be investing market powder.

Question 3

What impacts does demergers have on business?

Answer 3

Long term - higher returns
Short term- cost of selling off a part of their business

Question 4

What impact does demergers have on employees?

Answer 4

Expected job losses if demerger is driven by a desire to control
Opportunities for managers of newly demerged business

Question 5

What impacts does demergers do to consumers?

Answer 5

Impact on prices depends on scale of competition