Demerger – Meaning & Purpose

Demerger refers to corporate strategy in which a company splits into more than one entity. Converse to merger, it is done to operate each of the segments smoothly, dissolve one of the segments to raise capital or to focus on core business.

Purpose:

In most of the cases, demerger takes place when management decides to focus on core business activities. Also, it is used as a mechanism to raise capital by selling off one of the parts of entity. It also simplifies the company structure and is used to expand the operation of segmented part(s).

Example:

On 3rd June 2015, Adani Enterprise demerged its Ports, Power and Transmission businesses in Adani Ports and Special Economic Zone Limited, Adani Power Limited and Adani Transmission Limited. The company took the decision to simplify it’s structure and expand operations.

2 thoughts on “Demerger – Meaning & Purpose”

  1. How is purchase consideration settled in case of demerger and the same is apportioned to the net assets?Please clarify!

    1. Hello kailash!

      Purchase consideration in case of demerger is made by way of issue of shares to the shareholders on proportionate basis to the shareholders holding not less-than 3/4th of the shares in value.

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