3.1.3 Demergers

• Demerger:


  When a business sells off one or more of the businesses it owns into a separate company.

  E.g. Lloyds TSB banking group demerging to form Lloyds and TSB.
• Reasons for a demerger

  -Cultural differences

  -Creating more focussed firms (e.g. when a conglomerate sells off part of the business to focus on core activities)

  -Protecting the value of the firm

  -Reducing diseconomies of scale

  -Raising finance

  -To meet the requirements of regulators
• Impacts of demergers on businesses

  -Reduced diseconomies of scale

  -Allows managers to focus on the core business

  -Remove loss-making parts of the business

  -Raise funds by selling part of the business
• Impacts of demergers on workers

  -Increased job security if loss-making parts of the business are demerged

  -Reduced conflict between cultures

  -There may be job losses as now fewer employees are needed
• Impacts of demergers on consumers

  -More firms in the market results in increased competition, lower prices and increased consumer surplus

  -If firms focus on the core of their business they may be able to deliver higher quality