demerge

A demerge is a corporate action in which a company separates part of its business into a new, independent entity. The parent company continues with its remaining operations, while the spun-off unit becomes a standalone company with its own management, board, and capital structure. A demerge is distinct from a merger or acquisition, as it involves separation rather than combination.

There are several forms of demerger. In a spin-off, shareholders of the parent receive shares in the new entity proportional to their existing holdings, and the spun-off company becomes independent. In a split-off, shareholders exchange some or all of their parent shares for shares in the new company. A carve-out involves selling a minority stake in the subsidiary to external investors while the parent may retain control or ownership of the remainder. The specific mechanics depend on jurisdiction and the company’s strategic goals, and the spun-off entity may be listed on a stock exchange or remain privately held.

Regulatory and process considerations are central to a demerge. It typically requires board and shareholder approval, along with any necessary regulatory clearances from competition authorities and securities regulators. Tax considerations, valuation of the businesses, and the treatment of contracts and employees are important factors. Post-demerge, governance arrangements, management appointments, and potential transfer of key agreements are commonly addressed.

Reasons for pursuing a demerge include refocusing on core activities, unlocking shareholder value, raising capital, reducing debt, and addressing regulatory or antitrust concerns. Impacts on stakeholders can include changes in liquidity, tax outcomes, and governance, with the outcome depending on how the separation is executed and integrated into broader corporate strategy.