Demergers fail to unlock value; shareholders' wealth hit post-restructuring

Promoter selling, weak fundamentals have weighed on share prices in recent cases

Demergers, which are expected to unlock shareholder value, have not worked in favour of shareholders if recent examples are to be considered.

A sample of six of the last seven demergers that came into effect since 2017 (based on record date), have proved to be value destructive for investors. Currently, the combined market capitalisation of the resultant entities is on an average 31 per cent down over their market value prior to the demerger.  

In absolute terms, the overall hit on shareholders’ wealth from these six demergers is around Rs 150 billion.

Weak fundamentals of the demerged entities and