Demerger

Question 1

Demerger

Answer 1

separation of a division or subsidiary from its parent company.

Question 2

Spin off

Answer 2

distribution of shares of the subsidiary to existing shareholders

Question 3

Split up

Answer 3

parent is split into two or more and is liquidated.

Question 4

Split off

Answer 4

shareholder of parent has option to exchange shares for subs (usually non pro-rata stock distributions).

Question 5

Carve out

Answer 5

shares of new subsidiary sold through an IPO (20/30%)

Question 6

Divesture

Answer 6

sale or disposal of assets to achieve an objective

Question 7

Reasons for a demerger

Answer 7

market mistakes, contaminated parts, suboptimal capital allocation, higher operating costs, lower taxes, difficult to value, non-core managers may lack motivation…

Question 8

Costs of a demerger

Answer 8

loss of economies of scale
less access to capital (at higher costs)
lost revenue synergies

Question 9

Risks of a demerger

Answer 9

target of takeovers
lenders don’t like it
liquidity discount
lower diversification

Question 10

Assessing breakups

Answer 10

past performances, separate business, mgt rationale