{{short description|Form of corporate restructuring}}A '''demerger''' is a form of corporate restructuring whereby parts of a business are separated into different corporations.<ref name="Bryer">{{Cite book|last=Bryer|first=Lanning G.|title=Intellectual property assets in mergers and acquisitions|pages=12.2–12.3|publisher=John Wiley and Sons|year=2002|isbn=978-0-471-41437-7}}</ref> It is the converse of a merger or acquisition. Companies demerge for various strategic reasons, such as improving the focus within a business or raising capital, and can be forced to do so, in some jurisdictions, due to government intervention to improve market competition. Demerging a public company will often result in an immediate fluctuation in share price. Demerging can also occur prior to the newly formed company or companies being listed on the stock market.
==Types and purpose==
A demerger can take place through a spin-off, where the holding company gains equity in the new corporation that is the same as the loss of equity in the company that demerged. A split-off occurs when multiple new companies are formed from the original business. A partial demerger occurs when the holding company retains a reduced stake in the new company created.<ref name=":0" /> Demergers can also occur as a result of liquidating a company and transferring assets to new companies.<ref>{{Cite web |last=Covell |first=Calum |date=2021-04-22 |title=The benefits and drawbacks of demergers |url=https://growthbusiness.co.uk/the-benefits-and-drawbacks-of-demergers-growthbusiness-guide-1297/ |access-date=2026-05-29 |website=Growth Business |language=en-US}}</ref> Divestments differ from demergers, as they involve selling aspects of an existing business to new owners, in some instances to reverse a previous merger.<ref>{{Cite web |title=Funding growth - Methods of growth - Higher Business management Revision |url=https://www.bbc.co.uk/bitesize/guides/z7m47nb/revision/4 |access-date=2026-05-29 |website=BBC Bitesize |language=en-GB}}</ref>
Demergers can be undertaken for various business and non-business reasons, such as government intervention, by way of antitrust law, or through decartelization,<ref name="Krishna">{{Cite book|last=Krishna|first=K.L.|author2=Uma Kapila|title=Readings in Indian Agriculture and Industry|page=599|publisher=Academic Foundation|year=2009|isbn=978-81-7188-734-7}}</ref> as a defensive corporate strategy to avoid government intervention, as a way of improving the focus on the core business and competencies, and when remaining as part of a single business offers little advantage due to different parts of a business not making each part more efficient.<ref>{{Cite web |title=Business De-mergers |url=https://www.tutor2u.net/economics/reference/de-mergers-and-divestment |access-date=2026-05-29 |website=www.tutor2u.net |language=en}}</ref><ref>{{Cite web |title=Demergers |url=https://www.thetutoracademy.com/revision-notes/demergers/ |access-date=2026-05-29 |website=The Tutor Academy |language=en}}</ref> Demergers can occur so a company can increase investment and capital,<ref>{{Cite web |title=Demerger Meaning: Spin-offs, Split-offs and Carve-outs Explained |url=https://www.forex.com/en-uk/trading-guides/what-is-a-demerger/ |access-date=2026-05-29 |website=Forex}}</ref> and have also been used as a method of preventing a hostile takeover.<ref name=":0">{{Cite news |title=Demerger: Definition, How It Works, Reasons, and Types |url=https://www.investopedia.com/terms/d/demerger.asp |archive-url= |archive-date= |access-date=2026-05-29 |work=Investopedia |language=en}}</ref>
==Examples==
An example of a demerger, was eBay's decision to create a separate corporate entity for PayPal, in 2014. The announcement led to a 7.5% increase in eBay's share price. At the time the decision was announced, PayPals growth in revenues was double that of eBay's, whilst significant new entrants such as Apple Pay had entered the online payments market, increasing competition.<ref>{{Cite news |date=2014-09-30 |title=eBay to split off PayPal online payment business |url=https://www.bbc.co.uk/news/business-29423251 |access-date=2026-05-29 |work=BBC News |language=en-GB}}</ref> In the same year, 18% of demergers in the US occurred within the technology sector.<ref>{{Cite web |last=Kien Pham |first=Peter |date=2014-11-19 |title=The risks and rewards of demergers |url=https://www.weforum.org/stories/2014/11/the-risks-and-rewards-of-demergers/ |access-date=2026-05-29 |website=World Economic Forum}}</ref>
A Prudential demerger in 2018 resulted in the creation of M&G Prudential, which would focus mainly on the UK and European markets, whilst Prudential plc would be focused on markets such as Asia and the US.<ref>{{Cite news |last=King |first=Ian |date=2018-03-15 |title=Prudential demerger to result in two FTSE 100 companies |url=https://news.sky.com/story/prudential-demerger-to-result-in-two-ftse-100-companies-11289505 |archive-url= |archive-date= |access-date=2026-05-29 |work=Sky News |language=en-GB}}</ref> M&G Prudential was subsequently listed on the stock market.<ref>{{Cite web |last=Menin |first=Anna |date=2019-10-21 |title=M&G makes debut as Prudential demerger completed |url=https://www.cityam.com/mg-makes-debut-as-prudential-demerger-completed/ |access-date=2026-05-31 |website=City AM |language=en-GB}}</ref> When Associated British Foods took the decision to demerge Primark in 2026, the immediate market reaction was its share price falling.<ref>{{Cite news |last=Sillars |first=James |date=2026-04-21 |title=Primark demerger aims to maximise potential after successive shocks |url=https://news.sky.com/story/primark-demerger-aims-to-maximise-potential-after-successive-shocks-13534399 |access-date=2026-05-29 |work=Sky News}}</ref> To improve focus and attract investors, Vedanta demerged, with the outcome being five separate businesses in 2026, with the demerged companies expected to list on the stock market.<ref>{{Cite web |last=Khan |first=Md Zakariya |date=2026-05-05 |title=Explained: Understanding Vedanta’s demerger math and its impact on shareholders |url=https://www.fortuneindia.com/business-news/explained-understanding-vedantas-demerger-math-and-its-impact-on-shareholders/135917 |access-date=2026-05-29 |website=Fortune India |language=en}}</ref>
== See also == * Equity carve-out *Successor company
==References== {{Reflist}}
{{Corporate finance and investment banking}}
Category:Corporate finance Category:Restructuring