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Demerger
A corporate restructuring in which one part of a company is spun off as a new company, often with quoted status of its own. Examples in the UK include Zeneca which was spun out of ICI, and Argos which was spun out of British American Tobacco.Like their opposite - mergers - demergers tend to go in and out of fashion. When share prices are rising, companies like to use their 'paper' (i.e. shares) to acquire other companies, so their advisers encourage merger activity. In a market of falling prices, mergers and IPOs are less popular, and the merchant banks who earn their fees from corporate activity will start to look at demerger possibilities for their clients.From a tax point of view, when Company A splits into two or more parts, and distributes shares in each part to its original shareholders, there is no disposal for CGT purposes.In a study of 38 demergers, the London School of Economics found that demergers are beneficial to shareholders both at the time of the announcement and in the two years following.
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