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Before getting into insights, let us understand what amalgamation means. As the name suggests, Amalgamation is the blending of two or more existing companies into one. Say, company A and company B go into liquidation to create a new entity C. Amalgamation also includes the Absorption. Absorption is the process where one company takes control over the other. Considering the example, company A takes over company B and now, B is the wounded up.


There are two commonly used terms you need to remember while referring the companies in amalgamation. They are as follows:


  1. Transferor company is the amalgamating company
  2. Transferee company is the amalgamated company.


Types of Amalgamation: As per the accounting purposes, AS-14, amalgamation has been categorized into two as follows:

  1. Amalgamation in the nature of merger: When the assets and liabilities of the companies are truly pooled, as well as the interest of the companies and shareholders, is also combined, then it is called an amalgamation in the nature of merger.
  2. Amalgamation in the nature of purchase: This method comes into existence when the conditions of the amalgamation in the nature of merger are not satisfied. When the assets and liabilities of the company are obtained by another and purchase consideration is paid by the transferee company.


Based on the above classification there are two methods to perform the accounting of amalgamation as follows:

  1. The Pooling of Interests Method: The object of Pooling of Interest Method is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies. Through this accounting method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts.
  2. The Purchase Method: The object of the Purchase Method is to account for the amalgamation by applying the same principles as are applied to the normal purchase of assets. In this method, the transfer company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation.


Need for Amalgamation:

Amalgamation helps in the elimination of competition amongst other groups of industries.

  • Amalgamation can also assist in the recreation of monopoly in the industry.
  • It also takes place as a measure of tax planning.
  • Amalgamation enhances the value of companies
  • It can also be used to achieve growth gain financially.


The procedure of Amalgamation:

  1. The terms of amalgamation are settled up by the board of directors of the constituent companies.
  2. A scheme of amalgamation is prepared and submitted for approval to the respective High Court.
  3. Approval of the shareholders of the constituent companies is obtained
  4. Approval of SEBI is obtained.
  5. A new company is formed and issues shares to the shareholders of the transferor company.


Advantages of Amalgamation:

  • Competition between and among the companies in the industry will be eliminated.
  • Monopoly in the market can be attained.
  • Research and development facilities are increased.
  • Benefits of large-scale production can be secured.
  • Bulk purchase of materials at narrow cost is possible.
  • Operating cost can be reduced by avoiding duplication.


Disadvantages of Amalgamation:

  • Amalgamation eliminates the cut-throat competition in the industry.
  • Unemployment may occur.
  • People may not work in harmony, thereby resulting in the signs of discontentment.
  • A business combination may result in over-capitalization.
  • There’s no mandatory that every amalgamation gets to succeed. One has to be ever ready for facing trial and tribulations.


Who is involved in Amalgamations?


Any amalgamation typically looks for investment bankers, accountants, lawyers, executives of the respective companies. The bankers perform their job by finance modelling, valuation etcetera to evaluate the potential transaction whereas the lawyers take care of the corporate clients to determine which of the mentioned legal structures is optimal.

Recently announced Amalgamation

One of the recent amalgamations announced on the corporate front is of PVR Ltd. Multiplex operator PVR Ltd has approved an amalgamation scheme between Bijli Holdings Pvt Ltd and itself to simplify PVR’s shareholding structure. As per the management, the purpose of the amalgamation is to simplify the shareholding structure of PVR and reduction of shareholding tiers. It also envisages demonstrating Bijli Holdings’ direct engagement with PVR. After the amalgamation, individual promoters will directly hold shares in PVR and there will be no change in the total promoters’ shareholding of PVR.

Other examples of Amalgamations

  1. Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited.
  2. Gujarat Gas Ltd (GGL) is an amalgamation of Gujarat Gas Company Ltd (GGCL) and GSPC Gas.
  3. Satyam Computers and Tech Mahindra Ltd
  4. Tata Sons and the AIA group of Hongkong amalgamated to form Tata AIG Life Insurance.

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