Amalgamation of Companies

If you read the business column of a newspaper regularly or have any knowledge of the business world, you’ve probably heard the term acquisition, like a merger, that is used in business whenever one firm buys a substantial number of shares in another, prompting the latter to cease operations and combine with the former. Absorption is the term for this procedure. However, it is occasionally necessary to start a whole new company by joining the two current organisations to gain more benefits. It is referred to as amalgamation. Let us take a closer look to comprehend better what this amalgamation of a company means. 

What is the Amalgamation of Companies?

Amalgamation is described as merging two or more businesses to form a new entity. It contains the following items:

• A new company is formed when two or more companies join forces

• Absorption or blending of one by the other 

As a result, absorption is included in amalgamation.

However, it’s essential to realise that, as the name implies, amalgamation is nothing more than two organisations merging into one. On the other hand, absorption is the process through which one big corporation takes control of a weaker one. Amalgamation is usually done between two or more organisations involved in the same line of business or have some operational synergy. Companies may also join forces to diversify their activities or expand their service offerings. The company amalgamated into another company is referred to as the transferor company, and the firm into which the transferor company is merged is referred to as the transfer company.

Examples of Amalgamation of Companies

• Maruti Suzuki (India) Limited was formed when Maruti Motors in India and Suzuki in Japan merged to create a new firm called Maruti Suzuki (India) Limited

• Gujarat Gas Ltd (GGL) is the result of the merger of Gujarat Gas Company Ltd (GGCL) and Gujarat State Power Corporation Gas (GSPC Gas)

• Satyam Computers and Tech Mahindra Ltd

What is the difference between an Amalgamation and a Merger?

Amalgamation differs from a merger in that none of the two companies involved is a legal entity. A whole new entity is developed due to the merger, with the assets and liabilities of both companies amalgamated.

Types of Amalgamation of Companies

Like a merger, amalgamation: 

This sort of merger involves the pooling of assets and liabilities and the pooling of the shareholders’ interests and the firms’ enterprises. In other words, the transferor company’s assets and liabilities become the transferor company’s. The transfer and the company’s business are meant to continue after the amalgamation in this situation. The book values are not going to be adjusted in any way. The shareholders of the vendor company who own at least 90% of the face value of the equity shares in the vendee firm must also become shareholders of the vendee company.

In the nature of the purchase, amalgamation:

When the prerequisites for an amalgamation in a merger are not met, this type of merger takes place. Another buys one company via this method, and the acquired company’s shareholders typically do not retain a proportionate share of the merged firm’s ownership. The acquired company’s business is generally not meant to be maintained. If the acquisition price is greater than the net asset value, the difference is recorded as goodwill, whereas if it is less, the difference is recorded under capital reserves. 

Advantages and Disadvantages of Amalgamation of Companies

Advantages

• There is no longer any competition between the companies
• The number of R&D facilities has risen
• It is possible to lower operating costs
• The price stability of items is preserved

Disadvantages

• Amalgamation could result in the abolition of healthy competition
• People may be laid off
• There could be more debt to pay off
• Combining businesses can result in a market monopoly, which isn’t always good
• The former company’s goodwill and identity can be lost

Conclusion

Amalgamation is one of the techniques that can assist organisations in avoiding competition and expanding their market offerings by combining their assets. It is in the acquirer’s and acquired companies’ best interests. It is an effective method of corporate restructuring for bringing about positive change and making the business climate more competitive.