Amalgamation

A report submitted in the partial fulfillment of the

requirement for the degree of

Masters of Business Administration

Submitted to: Submitted by:

Ms.: Parveen Kumari Amanpreet Kaur
19421065
MBA

Amalgamation
What is Amalgamation?

• Amalgamation is an arrangement where two or more companies consolidate

their business to form a new firm or become a subsidiary of any one of the
companies. An amalgamation is a combination of two or more companies
into a new. Amalgamation is distinct from a merger because neither
company involved survives as a legal entity. Instead, a completely new
entity is formed to house the combined assets and liabilities of both
companies.
• The term amalgamation has generally fallen out of popular use in countries
like the United States, being replaced with the term's merger or
consolidation. But it is still commonly used in countries like India.
 ❖ Understanding Amalgamations:

Amalgamation typically happens between two or more companies engaged in the

same line of business or those that share some similarity in operations.
Companies may combine to diversify their activities or to expand their range of
services.
Since two or more companies are merging together, an amalgamation results in
the formation of a larger entity. The transferor company—the weaker company—
is absorbed into the stronger transferee company, thus forming an entirely
different company. This leads to a much stronger and larger customer base, and
also means the newly formed entity has more assets.
Amalgamations generally take place between larger and smaller entities, where
the larger one takes over smaller firms.
 ❖ Types of Amalgamation:

One type of amalgamation—similar to a merger—pools both companies’ assets

and liabilities, and the shareholders’ interests together. All assets of the
transferor company become that of the transferee company. The business of the
transferor company is carried on after the amalgamation. No adjustments are
made to book values. Shareholders of the transferor company holding a minimum
of 90% face value of equity shares become shareholders of the transferee
company.
The second type of amalgamation is similar to a purchase. One company is
acquired by another, and shareholders of the transferor company do not have a
proportionate share in the equity of the combined company. If the purchase
consideration exceeds the net asset value (NAV), the excess amount is recorded
as goodwill. If not, it is recorded as capital reserves.
Purpose of Amalgamation:

Companies go for amalgamation, for a number of reasons such as:

• Gaining synergy
• Avoiding competition
• Increasing efficiency
• Business expansion
• Reaping economies of large-scale production
When amalgamation is affected, some or all the assets and liabilities of the
vendor companies, are transferred to the vendee company. Similarly, the
shareholders of the old entity turn out as the shareholders of the amalgamated
entity.

❖ The Pros and Cons of Amalgamation:

Amalgamation is a way to acquire cash resources, eliminate competition, save on

taxes, or influencing the economies of large-scale operations. Amalgamation may
also increase shareholder value, reduce risk by diversification, improve
managerial effectiveness, and help achieve company growth and financial gain.
On the other hand, amalgamation, if too much competition is cut out, may lead to
a monopoly, which can be troublesome for consumers and the marketplace. It
may also lead to the reduction of the new company's workforce as some jobs are
duplicated and, therefore, make some employees obsolete. It also increases debt:
by merging the two companies together, the new entity assumes the liabilities of
both.
 ❖ Amalgamation Procedure:

The terms of amalgamation are finalized by the board of directors of each

company. The plan is prepared and submitted for approval. For instance, the High
Court and Securities and Exchange Board of India (SEBI) will approve the
shareholders of the new company when a plan is submitted.
The new company officially becomes an entity and issues shares to shareholders
of the transferor company. The transferor company is liquidated, and all assets
and liabilities are taken over by the transferee company.

❖ Example of Amalgamation:

In November 2015, drug firm Natco Pharma received shareholders' approval for
the amalgamation of its subsidiary Natco Organics into the company.
Consolidated results of postal ballots and e-voting showed the resolution passed
with 99.94% of votes in favor with 0.02% opposed and 0.04% invalid.