Businesses often look for strategic restructuring to become more competitive, grow their operations, and get economies of scale in today's fast-paced business world. For this reason, mergers and amalgamations are two common strategies used. In everyday speech, these two words are often used interchangeably, but they have different legal, financial, and operational meanings. It is important for business students, business professionals and investors to understand the differences between merger and amalgamation.
Meaning of Merger
When two or more businesses join together, one stays in business and the others go out of business. This is called a merger. The company that survives keeps its own name and takes over the other company's assets, debts, and operations. Most of the time, companies merge because they want to reach more customers, save money by buying in bulk, or get rid of competitors.
Key Features of a Merger
The following are the key features of a merger:
Surviving Entity: Only one of the merging companies continues to exist post-merger.
Transfer of Assets and Liabilities: The absorbed company’s assets and liabilities are taken over by the surviving company.
Shareholder Continuity: Shareholders of the merged company usually receive shares in the surviving company.
Legal Simplification: Since only one legal entity continues, regulatory processes are often simpler compared to amalgamation.
Types of Mergers include horizontal, vertical, conglomerate, or market-extension mergers.
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Meaning of Amalgamation
When two or more businesses join together to make a new one, this is called amalgamation. None of the original businesses survive on their own. Instead, their assets, liabilities, and operations are combined into a new business.
Key Features of Amalgamation
The following are the key features of amalgamation:
Creation of New Entity: A completely new company is formed, and all amalgamating companies cease to exist.
Comprehensive Integration: All business operations, assets, and liabilities of the previous companies are fully integrated.
Legal Process: Requires court approval and compliance with regulatory frameworks like the Companies Act.
Shareholder Interest: Shareholders of all original companies become shareholders of the new company in agreed ratios.
Strategic Collaboration: Often used when companies of similar size and structure aim to pool resources for competitive advantage.
Also, Get to Know About Kotak Mahindra Bank's Acquisition of Sonata Finance Case Study
Merger Vs. Amalgamation: Key Differences
It is important to know the difference between merger and amalgamation because both involve business combinations but are very different in how they are set up, how the law works, and how they affect the companies involved.
1. Definition
Merger: A process where one company absorbs another, and only the absorbing (surviving) company continues to exist.
Amalgamation: A process where two or more companies combine to form a completely new company, and all original entities cease to exist.
2. Legal Status Post-Combination
Merger: One of the companies survives, retaining its legal identity.
Amalgamation: All participating companies are dissolved, and a new legal entity is created.
3. Survival of Company
Merger: At least one of the original companies survives.
Amalgamation: None of the original companies survive independently.
4. Formation of New Entity
Merger: No new company is formed; only an existing one expands.
Amalgamation: A new company is created to take over the business of all amalgamating entities.
5. Ownership and Shareholding
Merger: Shareholders of the merged (absorbed) company are allotted shares in the surviving company.
Amalgamation: Shareholders of all combining companies receive shares in the newly formed entity.
6. Purpose and Strategy
Merger: Often aimed at quick expansion, eliminating competition, or acquiring new capabilities.
Amalgamation: Typically used for long-term strategic restructuring and equal collaboration between similar-sized entities.
7. Size of Companies Involved
Merger: Usually involves a larger company absorbing a smaller one.
Amalgamation: Usually involves companies of similar size, scale and operations joining hands.
8. Control and Management
Merger: The surviving company’s management usually takes control of the entire operation.
Amalgamation: A new management team is typically formed often comprising leaders from both or all original companies.
9. Accounting Treatment
Merger: May follow the "pooling of interests" or "purchase method" depending on accounting standards.
Amalgamation: Often follows specific legal provisions like the "pooling of interests method" under certain laws (e.g., AS-14 in India).
10. Regulatory Compliance
Merger: Requires board and shareholder approval and depending on jurisdiction, may involve limited court intervention.
Amalgamation: Requires extensive legal procedures including court approval and compliance with statutory guidelines.
11. Brand Identity
Merger: The surviving company retains its brand name and identity.
Amalgamation: The new company may create a new brand identity altogether.
12. Examples
Merger: Merger example is Facebook’s acquisition of Instagram (Instagram became part of Facebook, now Meta).
Amalgamation: The formation of ICICI Bank through the amalgamation of ICICI Ltd. and ICICI Bank.
13. Business Continuity
Merger: Continuity is smoother since one business entity continues without interruption.
Amalgamation: Operations may be temporarily affected as a new structure is put in place.
14. Asset and Liability Treatment
Merger: The surviving company takes over all assets and liabilities of the merged company.
Amalgamation: The new entity assumes all combined assets and liabilities.
15. Tax Implications
Merger: May offer specific tax benefits depending on the structure and jurisdiction.
Amalgamation: Often governed by detailed tax laws to prevent misuse, but can offer long-term tax efficiency.
Summary
Both mergers and amalgamations are meant to help businesses grow and run more efficiently, but they are very different in how they are set up, how the law applies, and how they work out in the end. In a merger, one company is absorbed by another, but each entity keeps its own name. When two or more businesses merge, they become one big company. This process is called amalgamation. In the business world, it's important to understand these differences in order to evaluate corporate strategies, investment opportunities, and legal compliance.
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Difference Between Mergers and Amalgamation: FAQs
Q1. Is a new company formed in a merger?
No, in a merger, the surviving company continues; no new company is formed.
Q2. Do all companies cease to exist in amalgamation?
Yes, in an amalgamation, all the existing companies dissolve to create a new company.
Q3. Which is more complex—merger or amalgamation?
Amalgamation is generally more complex due to legal procedures and the creation of a new entity.
Q4. Can shareholders benefit from both processes?
Yes, shareholders typically receive shares in the surviving or new company, depending on the process.
