Merger & Acquisition

Assignment- 1
A Unit Is Loss-Making

• When a single loss-making unit erodes the valuation especially of

the public listed company than it creates a direct impact on the
shares of the company.

Demerger example: CESC Ltd had four demerged units namely generation,
power, retail, distribution and other ventures. Since the retail unit incurred
losses. They did not want the overall valuation to get affected. As a result, the
demerger helped the company to get better valuated.

• Even a single loss-making unit reflects in annual reports which in

turn affects the investment of the company.
• As a result, companies choose a demerger example and separate
that one unit. This method not only valuates the company but
also helps to give specialized attention to the unit of loss-making.
• A company can, however, sell the loss-making unit, find a partner
or infuse the capital by finding private equity funds.

Focus On Core Business

• A company has a different line of business that demand various

investments, human resources etc. However, few represent the
core business of the company and they derive most of their
income into that respective business.
• As a result, to find out the true potential the companies consider
a demerger example. The firm demerges the potential units or the
core business to give a special focus.
• Furthermore, the demerged business takes the benefit of
specialization and leadership which streamlines the business.

Demerged example: RCOM who demerges to focus on core assets and formed
reliance property
Value For Shareholders

• Shareholders benefit from the demerged companies by holding

shares separately as well as together as a whole since they receive
shares on their holdings in the parent company.
• From the records, this has been noted that the listed demerged
companies created a valuable return for their
shareholders/investors.

Demerger example: Crompton Geaves which separated Crompton greaves

consumer electrical ( a consumer product business) and resulted in a 57% return
to its investors.

A Single-Wing Is Self-Sufficient

• If a particular undertaking depicts growth in a very short period,

then the company may opt to demerge that business to focus on
strategy and add expertise to gain potential.

Demerger example: Mario Ltd skincare business got demerged due to the group
interests from Mario’s core business which is FMCG. The company wanted to
raise investments and shareholder pattern.

Company Is Debt-Laden

• A demerger example can also be set when the company wants a

resolution from the process of Insolvency or Bankruptcy Code.

Demerger example: Jindal Stainless Ltd demerged its three business namely
power, domestic steel and international steel to leverage its idle capacity. The
demerger distributed its debt worth 8580 crores and opened the doors to
independently raise funds.