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  1. 1. Amalgamation Surabhi Agarwal
  2. 2. What is an Amalgamation ? <ul><li>Amalgamation generally takes in two parts : </li></ul><ul><li>A Merger is when two or more Organisation cease to exist in their own right And their resource , assets and roles are consolidated into a new entity which satisfies the needs of stakeholders . </li></ul><ul><li>A Takeover is when two or more Organisation cease to exist in their own right And their resource , assets and roles are consolidated into a new entity which satisfies the needs of stakeholders . Often a takeover is when a larger and more powerful body takes control of smaller body. </li></ul>
  3. 3. Definition <ul><li>According to Accounting Standard 14 , </li></ul><ul><li>(a ) Amalgamation means an amalgamation pursuant to the </li></ul><ul><li>provisions of the Companies Act, 1956 or any other statute which </li></ul><ul><li>may be applicable to companies. </li></ul><ul><li>(b) Transferor company means the company which is amalgamated </li></ul><ul><li>into another company. </li></ul><ul><li>(c) Transferee company means the company into which a transferor </li></ul><ul><li>company is amalgamated. </li></ul><ul><li>(d) Reserve means the portion of earnings, receipts or other surplus </li></ul><ul><li>of an enterprise (whether capital or revenue) appropriated by the </li></ul><ul><li>management for a general or a specific purpose other than a </li></ul><ul><li>provision for depreciation or diminution in the value of assets or </li></ul><ul><li>for a known liability. </li></ul>
  4. 4. WHY AMALGAMATE? <ul><li>Accelerated growth. </li></ul><ul><li>Enhance profitability through Economies of Scale & operating Economies. </li></ul><ul><li>Synergy </li></ul><ul><li>Diversification of risk. </li></ul><ul><li>Reduction in tax liability. </li></ul><ul><li>Increased market power. </li></ul><ul><li>Managerial efficiency. </li></ul>
  5. 5. Conti… <ul><li>Market Entry </li></ul><ul><li>Strategic </li></ul><ul><li>Maglomania </li></ul><ul><li>Hubris-spirit </li></ul><ul><li>More effective allocation of resources. </li></ul><ul><li>Increased quality or quantity of services </li></ul><ul><li>Improved government or corporate support </li></ul>
  6. 6. Methods of Amalgamation <ul><li>Pooling of interest method </li></ul><ul><li>- where all the assets , liabilities and interest of shareholders are pooled </li></ul><ul><li>Purchase Method </li></ul><ul><li>- Acquisition of one company by another for a price . </li></ul>
  7. 7. Pooling of interest <ul><li>Assets , Liabilities and reserves of Transferor company are recorded by the transferee company at their existing carrying amount . </li></ul><ul><li>If Transferor and Transferee company have conflicting accounting policies , a uniform set of accounting policies are adopted following the amalgamation. </li></ul>
  8. 8. Purchase Method <ul><li>The Transferee company accounts for amalgamation – </li></ul><ul><li>- by incorporating the assets and liabilities at their existing carrying amount or </li></ul><ul><li>- by allocation the consideration to individual identifying assets and liabilities of the transferor company on the basis of their fair value t the time of amalgamation . </li></ul>
  9. 9. Live Examples
  10. 10. Asian Paints-Berger International <ul><li>Year-2002 Asian Acquired 50.1% controlling stake in Berger International. Deal Rs.57.6 Crores Berger International has no operation in India but formed Berger Paints India Ltd. in Calcutta(subsidiary) Objective:-enter into the South East Asian market, growth. Such as Singapore, Thailand, Myanmar, Bahrain, Malta, UAE, Jamaica, Barbados and Trinidad, and Tobago. </li></ul>
  11. 11. Ranbaxy-Tokyo based Nippon Chemiphar Co. Ltd <ul><li>2002 Pharmacy market Ranbaxy (RLL) Helps to understand Japanese regulatory framework and market environment. Product advantage </li></ul>
  12. 12. AOL sells call centre to Essar <ul><li>April 1st 2008 Aegis BPO of Essar takes over to acquire AOL call centre in white field It is estimated at $100 million Payable in cash. Purpose is to enhance its voice and non voice offerings in the technological support space. </li></ul>
  13. 13. HP and Compaq Product line synergy <ul><li>2002 Deal for $25 billion Exchange ratio 0.6325 in shares of HP for 1 share in Compaq Compaq is good in consumer desk top, better distribution net work HP is global leader in printers and scanners. Purpose- large customer base and elimination of computer overlapping product lines . </li></ul>
  14. 14. ITC with ITC Bhadrachalam Paperboards Ltd.(Tax Benefits) <ul><li>2001 March End. ITCBPL- is subsidiary of ITC ITCBPL had a accumulated losses of Rs.125 crores. The loss due to high depreciation rate. ITC had a profit of Rs.1000 crores Take over benefits one time to reduce tax of 100 crores. </li></ul>
  15. 15. Godrej Soap Took over Transelektra Domestic products (cultural barriers) <ul><li>One company may have entrepreneurial and risk taking style of functioning. Other company may have extreme bureaucratic and procedural orientation. Managers at the middle level were sent to various Godrej sites for training so that they could have a first hand experience of systems and practices and such managers were playing as change agents. </li></ul>
  16. 16. Warner Hindustan- Park Davis(Cultural failure) <ul><li>Warner- task focused and formal organization Park Davis-people driven It had lowered their performances. IBM with Lotus development Corporation AT&T joint venture with Spanish and Swiss Telecom </li></ul>