UK0,M<$b@mevgɦmJ8s =-bU#b5')byiDz)%2.&_NKpGtJ|QGdr:>Fj0rA ؞F&!| 4`,mz3[
Study notes


  • Levels: AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

De-mergers have become more common in recent years

Business demergers - revision video

A de-merger happens when a firm decides to split into separate firms e.g. by spinning off / selling parts of their business

A partial demerger means that the parent company retains a stake in the demerged business

De-mergers can also result from government intervention - for example BAA has been compelled by the UK Competition Commission (now known as the Competition and Markets Authority) to sell off some airports in Britain including Gatwick & Stansted

Some of the key business motivations for de-merger include:

  1. Focusing on core businesses to streamline costs and improve profit margins
  2. Reduce the risk of diseconomies of scale and diseconomies of scope by reducing the range of functions in a business, lower management costs
  3. Raise money from asset sales and return to shareholders
  4. A defensive tactic to avoid the attention of the competition authorities who might be investigating possible monopoly power in an industry / market

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
Whitbread to spin off Costa Coffee from its other interests to please investors.

Economic Impact of De-Mergers


  • Long term – higher returns as cost savings are made
  • Short term cost of hiving off the business


  • Expected job losses – due to a process of rationalization
  • Opportunities for managers of the newly demerged business e.g. if there is a management buy-out of the business being sold


  • Impact on consumer prices depends on scale of competition + possible lost economies of scale which leads to higher unit costs

Why many takeovers fail - revision video

Why many takeovers fail - revision video

Subscribe to email updates from tutor2u Economics

Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Related Collections

Teaching Vacancies


Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u