We advise on all forms of demergers, reorganisations and solvent restructurings. At some time during the development of a company the directors and shareholders are likely to see advantages in diversifying the ownership of business activities. There are many occasions when a reorganisation of a company’s activities is desirable. More often than not the desire is either to protect one or more business activities or to divide business assets so that shareholders may pursue different career paths.

The presence of potential tax liabilities can often be a deterrent to undertaking a reorganisation. With careful planning, however, the commercial advantages of a reorganisation of business activities or shareholdings can be achieved without incurring a significant tax bill.

what is a demerger?

A demerger is a form of reorganisation where business activities owned by one company or group are separated out into several companies or groups. Each business will usually have the same ultimate ownership immediately before and after the demerger, but, because they are now independent organisations, this is likely to change over time. A demerger may be intended to package a business for a short term onward sale to a third party. However, even if an immediate sale is not planned, a demerger may be a suitable strategy to separate businesses which do not fit comfortably together, but give shareholders the opportunity to continue participating in their growth.

The lack of fit may arise for different reasons. The businesses may have different strategies or operational or regulatory needs which are difficult to fulfil while they are still linked. They may even be competing with each other. The demerger can enable management of each business to have a clearer focus and boost overall returns to shareholders. Where the company is listed, this problem is often more apparent, since such factors may result in the combined business being given a lower valuation than would be achieved were the business to be separate.

what is a reorganisation?

A reorganisation typically involves the transfer of assets (which may be the shares in a group company) from one group company to another company under the same ultimate ownership. There can be many different reasons for embarking upon this exercise. They may include the desire to repackage a division as a stand-alone entity to facilitate its disposal; a need to integrate an acquired business within an existing group structure; or the opportunity to benefit from operational or tax efficiency gains.