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D6.420 Demergers—overview

A demerger is a transaction or a series of transactions whereby a business or businesses carried on by companies in a group are taken out of the group and run under separate management but with virtually the same shareholders.

There are many commercial reasons why a demerger may be attractive. These include the following:

1. Ìý

   •ÌýÌýÌýÌý to unlock shareholder value (for example, if one comparatively profitable business is being undervalued by association with other comparatively less profitable businesses)

2. Ìý

   •ÌýÌýÌýÌý to ring-fence liabilities attaching to a particular business or as a precursor to a disposal of a business

3. Ìý

   •ÌýÌýÌýÌý to split the ownership of separate businesses between different sets of shareholders (more relevant to private companies) or as a way to focus management

There can also be tax benefits from carrying out a demerger. One of the most significant tax advantages is that on a subsequent sale of one of the demerged companies, the sale proceeds would be realised by the shareholders themselves rather than by the holding company of their group. This results