3.1.3

Question 1

Define Demerger?

Answer 1

demerger is a business strategy in which a single business is broken in two or more components.

Question 2

What could be the possible reasons for demergers?

Answer 2

-Lack of synergies- This is defined managers splitting their time between areas which are different. This could lead to dis economies of scale; firms may split to avoid these dis economies.

• Value of the company- Some companies demerge because the value of the separate parts of the company is worth more than the company combined. They will split to grow.
• Focused companies- if the company and management is more focused on individual markets; they become more efficient and successful to make high profits.

Question 3

2nd part

Answer 3

• management have limited time and skills.-evaluation
• some may want to avoid attention from competition authorities.
• if they were to focus on one area, managers can improve their skills and knowledge

Question 4

what is the impact of demerging?

Answer 4

• separate firms may need their own managers and leaders to get a promotion
• the goal of making more firms efficient results in job losses.
• as the producers start concentrating on a smaller core business can be more efficient.
• This will lead to innovation and can survive high competition
• consumers- can gain from innovation and efficiency-they have access to products at cheaper prices.
• As a result, they will be motivated by the profit level.