Definition
A demerger is a form of corporate restructuring in which the entity’s business operations are segregated into one or more components. It is the converse of a merger or acquisition.
De-Merger
What is a ‘De-Merger’
A de-merger is a business strategy in which a single business is broken into components, either to operate on their own, to be sold or to be dissolved. A de-merger allows a large company, such as a conglomerate, to split off its various brands to invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business’s core product line, or to create separate legal entities to handle different operations.
Explaining ‘De-Merger’
For example, in 2001, British Telecom conducted a de-merger of its mobile phone operations, BT Wireless, in an attempt to boost the performance of its stock. British Telecom took this action because it was struggling under high debt levels from the wireless venture. Another example would be a utility that separates its business into two components: one to manage the utility’s infrastructure assets and another to manage the delivery of energy to consumers.
Further Reading
- Voters' preferences regarding municipal consolidation: Evidence from the Quebec de-merger referenda – www.tandfonline.com [PDF]
- A normative model for local government de-amalgamation in Australia – www.tandfonline.com [PDF]
- Financing Growth Through Mergers, Acquisitions and Joint Ventures – papers.ssrn.com [PDF]
- Review of Company law on Merger and Acquisition in India using SCP paradigm – papers.ssrn.com [PDF]
