Demergers

• A demerger is when a large firm separates into smaller separate firms or sells at least one of the businesses it own
• Reasons for demergers:

  Lack of synergy in the large firm

  Diseconomies of scale

  To streamline their business focus

  To remove loss making divisions

  To generate extra revenue through the sale for dividend payments etc

  Comply with the CMA regulations
• Impacts of demergers of employees:

  • Loss of jobs

  Evaluation: Splitting into several other firms cretes the duplication of jobs instead and smaller workforce provides more opportunity for promotion

  • Reduced friction which can help team dynamics and therefore improve productivity and therefore efficiency
  • Narrow focus increases ease of tasks
• Impact on the firm conducting the demerger:

  • Remove loss-making divisions
  • Decreasing diseconomies of scale means lower costs/unit
  • Narrow focus increases productivity and efficiency, lowering costs
  • Removing cultural differences for smoother, more efficient operations
• Impacts on consumers of a demerger:

  • If successful, lower price due to increased efficiencies and removal of diseconomies.
  • Narrower focus means that consumers can experience better quality of product + customer service
  • If two firms in the same industry demerge, they can experience increased choice in the market