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what is a de-merger?
happens when a firm decided to split into separate firms, e.g. by spinning off selling parts of their business
what is de-listing?
taking a company off stock exchange, still have shareholders, just private
what is a partial demerger?
the parent company retains a stake in the demerger business
what are the reasons for demergers?
focusing on core businesses to streamline costs and improve profit margins
lack of synergies (where two or more activities/firms put together can lead to greater outcomes than the sum of the individual parts)
reduce the risk of diseconomies of scale by reducing the range of functions in a business, lower management costs
raise money from asset sales and return to shareholders
defensive tactic to avoid the attention of the competition authorities who might be investigating possible monopoly power in an industry / market
De-mergers can also result from government intervention - for example BAA has been compelled to sell off some airports in Britain, including Gatwick & Stansted
what are the impacts of demergers?
Businesses
Long term → higher returns as cost savings are made
Short term → cost of demerging
Employees
Expected job losses → due to a process of rationalisation
Opportunities for managers of the newly demerged business e.g. if there is a management buy-out of the business being sold
Consumers
Impact on consumer prices depends on scale of competition + possible lost economies of scale which leads to higher unit costs
recent examples of de-mergers
US food giant Sara Lee sold off coffee business Douwe Egberts
Qantas de-merged their airline business and run stand-alone domestic and international airline businesses
News International demerged Film/TV & Publishing businesses
Demerger of Clydesdale and Yorkshire banks
Pfizer sold their infant nutrition business to Nestle
Severn Trent Water demerged the waste management firm Biffa
PepsiCo demerged their food and drinks business by creating Yum
Brands (which owns KFC, Pizza Hut and Taco Bell)
In 2015 Yum Brands announced a demerger to create two separate businesses: Yum China and Yum Brands
Sports Direct selling their Dunlop brand
April 2018, Whitbread plc announces plan to de-merge Costa Coffee from their stable of businesses
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