Demergers Order of the Day

By: Material type: ArticleArticleLanguage: ENG Series: ; IXPublication details: Jun 2006 0Edition: 6Description: 52-60 PpSubject(s): DDC classification:
  •  Raj
Online resources: Summary: Demerger involves breaking away from the existing entity and creating something new. Demergers were invented in America in the 1920s. The demerger fever is catching up in a fast changing and highly competitive environment to give a business feel of start-up. The main advantage of demergers is that they are tax neutral. Companies demerge to reduce the debt burden. After the demerger, the share prices of the companies may shoot up but the true financial position will remain same, as demergers do not automatically create any new value. There are various ways in which demerger takes place like split-off and spin-off.
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Demerger involves breaking away from the existing entity and creating something new. Demergers were invented in America in the 1920s. The demerger fever is catching up in a fast changing and highly competitive environment to give a business feel of start-up. The main advantage of demergers is that they are tax neutral. Companies demerge to reduce the debt burden. After the demerger, the share prices of the companies may shoot up but the true financial position will remain same, as demergers do not automatically create any new value. There are various ways in which demerger takes place like split-off and spin-off.

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