IAI Actuarial Core Principles · Business Finance · Corporate growth, restructuring and divestment
Which statement about a demerger by a listed company, compared with an outright sale of the same division for cash, is most accurate?
After a demerger, shareholders hold shares in both the parent and the newly separated company, and the parent receives no cash. This differs from an outright sale, where the parent receives proceeds and shareholders no longer have an interest in the division.
- AThe parent receives cash proceeds that can be used to repay debt
- BShareholders end up holding shares in two separate companies, and the parent receives no sale proceedsCorrect
- CThe division is always acquired by its management team
- DThe division must be closed down and its assets sold piecemeal
- Shareholders lose all rights in the division's business
Explanation
In a demerger the division becomes a separate company whose shares go to existing shareholders, so they hold both entities. No cash is raised by the parent, which is the key contrast with a sale. The division continues operating, and shareholders keep their economic interest.
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