What is a De-merger?

A De-merger is a corporate action wherein a company transfers one/more of its business operations to another company(s). The company that transfers their business operations is known as the De-merged Company, and the company to which operations are transferred is known as the Resulting Company. Shareholders in the original company receive shares in the de-merged company in proportion to their holdings.

They occur for a number of reasons including the parent company looking to streamline operations, separate businesses, focus on core activities, etc. There are different types of de-mergers including spin-offs, split-ups, etc.

Important Dates during a De-merger:
For example, Arvind Ltd decides to de-merge its operations to separate its apparel and engineering businesses into Arvind Fashion and Anup Engineering. As a result, existing shareholders will receive: 
  • 1 share of Arvind Fashion for every 5 shares of Arvind Ltd
  • 1 share of Anup Engineering for every 27 shares of Arvind Ltd

Declaration Date: 8th Nov
The day the de-merger is announced to the public.
Ex-Date: 28th Nov
To be eligible to receive shares of the de-merged companies, purchases must be made on or before 27th Nov.
Investors who purchase shares on or after the ex-date will not be eligible to receive shares of the de-merged companies
Record Date: 28th NovAll shareholders of Arvind Ltd as per company records on 28th Nov will receive shares in the de-merged companies in the given ratio.
Credit & Relisting DateAfter the de-merger, the new companies will be listed on the stock exchanges, and shares credited to the demat account of eligible shareholders. 

Since we have shifted to the T+1 settlement cycle, the ex-date and record date for corporate actions fall on the same day.

A Spin-off is a de-merger wherein shares of the new subsidiary are distributed to existing shareholders.

A Split-off is a de-merger wherein shares of the new subsidiary are offered to existing shareholders. Here, they are made to choose between holding shares in the subsidiary and parent company.

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