Demergers

Question 1

Demerger definition

Answer 1

When a firm decides to split into separate, independently owned firms

Question 2

Reasons for demergers

4

Answer 2

• Focusing on core business to streamline costs and reduce profit margins (poor synergy)
• Reduce the risk of diseconomies of scale
• Raise money from asset sales
• To avoid the attention of the CMA who may be investigating possible monopoly power

Question 3

Examples of demergers

Answer 3

Fosters Group de-merging its 2 main operating divisions - one focusing on beer & the other wine

Question 4

How demergers affect different groups

Answer 4

Businesses - Could increase efficiency and lower costs

Consumers - Could benefit form lower prices if the firm becomes more efficient

Employees - Promotion opportunities due to separate management structure. Some, however, could lose their job as efficiency gains lead to fewer workers being required