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The above mentioned question, BPP’s answer to it, had a line stating:
Using the same PE ratio method used in part (a), the aircraft parts division can be valued at 12 × $83m = $996m. The two separate businesses would be valued at a total of $1,577m (996m + $581m). If the value of the existing business is currently less than $1,577m, then a demerger could be worthwhile.
I get the calculations but why is that if the value of the exiting business (Nubo Co) is less than the valuations of the two businesses combined (based on P/E MODEL) then a demerger is worthwhile. What makes the demerger worth it and why is this the case?
Is it that due to separating the two divisions, their share prices will increase as a result of the increased valuations and the shareholders can make a greater capital gain?
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