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Demergers 'making a comeback'

30 March 2010

Despite reports declaring an upturn in mergers and acquisitions during the first quarter of the year, demergers could turn out to be the real driver of deal activity in the early stages of 2010.

Investment bankers and analysts have noted that the trend for splitting up companies appears to be gaining momentum, particularly in Europe, the Financial Times reports.

Telecommunications giant Cable & Wireless separated into two companies last week, meaning the FTSE 100 index briefly contained 101 firms.

According to the newspaper, demergers are often viewed as "the less risky cousin of mergers and acquisitions".

For this reason, the popularity of such deals could continue to grow in the face of ongoing economic uncertainty.

However, investors have warned that demergers should not be attempted without a solid business case.

Michael McKersie, assistant director of investment affairs at the Association of British Insurers, told the publication: "They must be done because they create value for shareholders, whether it's a merger or a demerger. That's got to be the bottom line."

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Categories: Commercial

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