Amalgamation

What is 'Amalgamation'

Amalgamation is the combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity; a completely new entity is formed to house the combined assets and liabilities of both companies. This sense of the term amalgamation has generally fallen out of popular use, and the terms "merger" or "consolidation" are often used instead.

BREAKING DOWN 'Amalgamation'

Amalgamation is more common in countries such as India than in the United States. Amalgamation typically happens between two or more companies engaged in the same line of business or having some similarity in operations. The companies may combine for diversification of activities or expansion of services. The transferor company, or weaker company, is absorbed into the transferee company, or stronger company, forming an entirely different company.

Types of Amalgamation

An amalgamation in the nature of a merger pools the companies’ assets and liabilities as well as the shareholders’ interests and the business of the companies. 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.

An amalgamation in the nature of purchase occurs when conditions for amalgamation in the nature of merger are not met. One company is acquired by another, and shareholders of the transferor company do not continue having proportionate share in the equity of the combined company or the business of the transferor company is not intended to continue. 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.

Reasons to Amalgamate

Amalgamation is done as a method of acquiring cash resources, eliminating competition, saving on taxes or influencing the economies of large-scale operations. Amalgamation increases shareholders’ value, reduces risk by diversification, improves managerial effectiveness and helps achieve company growth and financial gain.

Amalgamation Procedure

An amalgamation’s terms are finalized by the companies’ board of directors. The scheme is prepared and submitted to the High Court for approval. The High Court and Securities and Exchange Board of India (SEBI) approve the shareholders of the new company. 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 amalgamation of its subsidiary Natco Organics Ltd. into the company. Consolidated results of postal ballots and e-voting showed the resolution passed with 99.94% of votes in favor, 0.02% opposed and 0.04% invalid.

RELATED TERMS
  1. Consolidate

    The combining of assets, liabilities and other financial items ...
  2. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  3. Consolidation Phase

    A stage in the life of a company or an industry in which components ...
  4. Principal Shareholder

    The main owner of a publicly traded investment, also known as ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that follows the ...
  6. Shareholder

    Any person, company or other institution that owns at least one ...
Related Articles
  1. Investing

    Mergers Put Money In Shareholders' Pockets

    Learn the five ways mergers and acquisitions can increase a company's value.
  2. Personal Finance

    A Look At The Generation-Skipping Transfer Tax

    For those who encounter this tax, it can be costly. Find out how to navigate this complicated tax arrangement.
  3. Investing

    Mergers and Acquisitions: Doing The Deal

    Start with an Offer When the CEO and top managers of a company decide that they want to do a merger or acquisition, they start with a tender offer. The process typically begins with the acquiring ...
  4. Investing

    Knowing Your Rights As A Shareholder

    We delve into common stock owners' privileges and how to be vigilant in monitoring a company.
  5. Investing

    Reverse Mergers: The Pros And Cons

    Reverse mergers can provide excellent opportunities for companies and investors, but there are still some downsides and risks.
  6. Investing

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  7. Markets

    Why Do Companies Care About Their Stock Prices?

    Read on to learn more about the nature of stocks and the true meaning of ownership.
  8. Personal Finance

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.
  9. Investing

    Value Investing: Finding Value In Financial Reports And Balance Sheets

    There is plenty of information about a company that you'll want to know as a value investor, but that you can't get from a casual glance at a stock quote or from reading most stock market commentary. ...
  10. Investing

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
RELATED FAQS
  1. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  2. In M&A how does an all-stock or all-cash deal affect the equity of the buying company? ...

    Mergers and acquisitions (M&A) are forms of corporate restructuring that are becoming increasingly popular in the modern ... Read Answer >>
  3. How long does it take for a merger to go through?

    Corporate mergers and acquisitions can vary considerably in the time they take to be completed. There are a number of individual ... Read Answer >>
  4. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    Learn about mergers and acquisitions and how these two corporate actions differ based on the size and participation of the ... Read Answer >>
  5. What is the difference between a merger and an acquisition?

    Read about the legal and practical differences between a corporate merger and corporate acquisition, two terms often used ... Read Answer >>
  6. What is a stock-for-stock merger and how does this corporate action affect existing ...

    First, let's be clear about what we mean by a stock-for-stock merger. When a merger or acquisition is conducted, there are ... Read Answer >>
Hot Definitions
  1. Poison Pill

    A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make ...
  2. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  3. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  4. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  5. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  6. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
Trading Center