Demergers & Divestitures
A De-merger is a corporate restructuring which allows a large company, such as a conglomerate, to split off its various brands or business units to invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business’s core product line, or to create separate legal entities to handle different operations. A de-merger may take place for several reasons, including focusing on a company’s core operations and spinning off less relevant business units, to raise capital, or to discourage a hostile takeover.
Demergers have proved to be a huge success in many companies when implemented with extensive planning. Our team is expert in providing below services:
Spin off
The shares of the new entity are distributed to the shareholders of the parent company on a pro-rata basis. The parent company also retains ownership in the spun-off entity.
Split up/Split off
Splits involve dividing the company into two or more parts with an aim to maximize profitability by removing stagnant units from the mainstream business. Splits can be of two types, Split-ups and Split-offs.
Hiving off
A type of demerger where the business is transferred to new ownership by selling it.
Slump Sale
Slump Sale is the transfer of whole or part of undertaking as sale for lump sum consideration as a going concern without assigning values to individual assets and liabilities.
Equity Carve out
Equity carve-outs are referred to a percentage of shares of the subsidiary company being issued to the public. This method leads to a separation of the assets of the parent company and the subsidiary entity. Equity carve outs result in publicly trading the shares of the subsidiary entity.
Divestiture means selling or disposal of assets of the company or any of its business undertakings/ divisions, usually for cash (or for a combination of cash and debt) and not against equity shares to achieve a desired objective, such as greater liquidity or reduced debt burden. Divestiture is normally used to mobilize resources for core business or businesses of the company by realizing value of non-core business assets.
Reasons for Divestitures
- Huge divisional losses
- Continuous negative cash flows from a particular division
- Difficulty in integrating the business within the company
- Unable to meet the competition
- Better alternatives of investment
- Lack of technological upgradations due to non-affordability
- Lack of integration between the divisions
- Legal pressures