Definition
Demerger
A demerger is when a company splits off a business division into a separate, independently listed company, giving shareholders shares in both.
In a demerger, a diversified company carves out a unit (say, a consumer arm or a financial-services arm) into a new entity. Existing shareholders receive shares of the new company in a set ratio, often unlocking value that was hidden inside the conglomerate.
Indian examples include the demerger of financial-services and other arms by large groups. The parent's share price adjusts downward to reflect the spun-off value, and the new company lists separately on the NSE/BSE. Demergers can sharpen management focus and let investors value each business on its own.
Related terms
- Merger / AmalgamationA merger or amalgamation is the combination of two or more companies into one entity, with shareholders of the merged firm receiving shares of the surviving company.
- DelistingDelisting is the removal of a company's shares from a stock exchange, after which they no longer trade publicly.
- Corporate ActionA corporate action is any event initiated by a company that affects its shares or shareholders, such as dividends, splits, bonuses, or mergers.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.