Exploring the demerger process

Abstract: Responding to an increasingly complex and competitive business climate, the last decades have seen a rise of various transformation alternatives for companies to consider. Whereas the field of M&A and divestitures have been devoted substantial academic attention, less research have been directed towards the unexplored phenomenon of demergers. Using a process oriented perspective, the purpose of this study is to explore the demerger process and its adherent phases. By identifying critical factors affecting the process, the aim is to establish a better understanding for how a demerger unfolds. The study takes on a qualitative case study approach, conducted on two companies depicting differing contextual settings. Our study suggests that demergers follow a similar process structure as merging companies, going through three sequential phases; predemerger phase, demerger execution phase and post-demerger phase. The study further identifies planning, leadership coordination skills, operative communication and capability creation as critical factors affecting the process. In addition, the study also stresses the risk of capability losses and the identification of a transition period initiating the post-demerger phase. As such, the study indicates that the demerger phases should not be seen as separate steps, but rather as a process of overlapping and interrelating phases. Finally, we advise future research to include demerging companies in which the level of integration prior to the demerger is higher, but also to scrutinize each of the three phases in more detail.