Benefits of a Demerger for the Business and Consumers (Essay Sample)

Evaluate the possible benefits of a demerger for the business and consumers. Illustrate your answer with an appropriate diagram(s).
A demerger is the opposite of a merger and is said to exist when a business sells off part of its business or when it splits itself into two or more separate parts in order to create two or more firms. Demergers usually occur to focus on core businesses in order to cut costs and raise profit margins, to lower the risk of diseconomies of scale or as a tactic to avoid the attention of authorities. In this case, the German retailer Metro Group demerged into two completely different companies, New Metro and CECONOMY. New Metro is responsible for the wholesale and food division and CECONOMY is a separate business that was formed, specializing in consumer electronics.
Demerging means that each business is likely to reduce in scale of output that would allow the business to move back along the long-run average cost curve, from AC1 at point A to AC2 at point B, towards the Minimum Efficient Scale (MES) of production in order to lower the cost per unit from C1 to C2.
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There are numerous benefits of a demerger for the business and for consumers. To begin with, a potential benefit to the firm of a demerger is that it will enable the firm to focus on different groups of clientele that can lead to greater efficiency and as a result, enjoy higher profit margins and lower costs per unit. Greater efficiency is likely to help companies to survive even greater