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Last updated 15 Oct 2020
This video looks at some of the reasons for business demergers and also some topical recent examples.
What is a demerger?
A de-merger is when a firm decides to split into separate firms
Motivations for a de-merger might include:
- Focusing on core businesses to cut average costs and therefore improve profit margins & returns to shareholders – this might involve selling-off loss-making subsidiaries
- Reduce the risk of diseconomies of scale and diseconomies of scope by reducing the range of functions in a business, and achieve lower management costs
- Raise money from asset sales and return to shareholders
- A defensive tactic to avoid the attention of competition authorities who might be investigating monopoly power
Topical examples of business demergers
- Pfizer selling their infant nutrition business to Nestle.
- Severn Trent Water demerged the waste management firm Biffa.
- PayPal splitting from eBay in 2014.
- Costa Coffee sold by Whitbread to Coca Cola
- Frasers Group (owner of Sports Direct, Evans Cycles and Jack Wills) selling their Dunlop brand.
- Tesco selling off its Polish business having already de-merged many of their Asian retail operations
- Prudential demerging their M&G Investment Fund business
- AP Moller-Maersk (Denmark) demerged their energy assets from its shipping business
- Walmart, the US-based retail giant selling Asda (October 2020)