Question
Which corporate restructuring strategy refers to the
separation of a business unit or division from its parent company, creating an independent entity with its own ownership and management? Read the following passage and answer the next 4 question (Q27-Q30) Corporate restructuring is an action taken by the corporate entity to modify its capital structure or its operations significantly. Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial jeopardy. The process of corporate restructuring is considered very important to eliminate all the financial crisis and enhance the company’s performance. The management of the concerned corporate entity facing the financial crunches hires a financial and legal expert for advisory and assistance in the negotiation and the transaction deals. Usually, the concerned entity may look at debt financing, operations reduction, any portion of the company to interested investors. In addition to this, the need for corporate restructuring arises due to the change in the ownership structure of a company. Such change in the ownership structure of the company might be due to the takeover, merger, adverse economic conditions, adverse changes in business such as buyouts, bankruptcy, lack of integration between the divisions, over-employed personnel, etc.Solution
A demerger, is the separation of a business unit or division from its parent company. This results in the creation of an independent entity with its own ownership and management structure. Demergers are often undertaken to streamline operations or unlock value.
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