Amalgamation, Absorption, External Reconstruction and Internal Reconstruction - An Overview

1. Dr.G.KARTHIKEYAN
Assistant Professor of Commerce
(Former Controller of Examinations)
A.V.C.College (Autonomous)
Mannampandal – 609 305
Mayiladuthurai
Amalgamation, Absorption, External Reconstruction
and Internal Reconstruction – An Overview

2. Present Commercial World dominated by M.N.Cs and
‘Size’ is considered as an advantage.
Economies of Scale and Globalization of Trade and
Industry have certainly given motivation for business
combinations in the form of Mergers, Acquisitions and
Reorganizations.
 ‘Take overs’, both unfriendly and friendly, have become
the order of the day.
 It is important to know the different form of such
takeovers, their legal position and the accounting
treatment.
INTRODUCTION

3. TATA and Air India:
In November 2022, Air India, which is wholly owned by
Talace Private Limited, a subsidiary of Tata Sons,
announced a merger with Vistara, which is a 51:49
joint venture between Tata Sons and Singapore
Airlines Limited. According to a press release by Tata
Sons, this merger is expected to be finalised in March
2024.
On January 27, 2022, Tata Sons, through its wholly-
owned subsidiary Talace Private Limited (“Talace”),
acquired a 100% stake in Air India. Vistara was founded in
2013 and currently operates in the Middle East, Asia, and
Europe.
Air India is expected to become India’s dominant domestic
and international airline with a combined fleet of 218
aircraft following a merger.
Source: https://etinsights.et-edge.com/top-3-mergers-and-acquisitions-in-
india-bold-moves-and-brilliant-
alliances/#:~:text=Mergers%20and%20acquisitions%20(M%26A)%20are,oper
ations%20from%20the%20other%20corporation.

4. HDFC and HDFC Bank
The merger between HDFC Ltd. and HDFC Bank
Ltd. in April 2022. Currently, as reported by ET, this
merger is estimated to reach a conclusion by June
2023. In essence, this merger has received all
approvals from regulators such as RBI, Insurance
regulatory and development authority of India
(IRDAI), and the private shareholders as well.
Touted as the biggest amalgamation in the
history of corporate India, this merged entity will
be branded as the HDFC Bank. Upon consolidation,
this entity has a combined asset base of 18 lakh
crore rupees as reported by ET in May 2023.
India’s premier housing finance company with and
into HDFC Bank,
Source: https://etinsights.et-edge.com/top-3-mergers-and-acquisitions-in-
india-bold-moves-and-brilliant-
alliances/#:~:text=Mergers%20and%20acquisitions%20(M%26A)%20are,oper
ations%20from%20the%20other%20corporation.

5. PVR and INOX Leisure
Initially announced in the year 2022, the erstwhile
rivals in the industry have pledged to consolidate
their business in a bid to create one of the largest
multiplex chains in India. As reported by CNBC, with
the merger of the two top multiplex chains in
India, the new entity aims to expand its network
up to 1500 and tap into markets in tier 3, 4, and 5
cities.
The combined entity will be named PVR Inox Ltd.
Cinemas launched after the merger will carry the
new brand name of PVR INOX ltd. Source: https://etinsights.et-edge.com/top-3-mergers-and-acquisitions-in-india-bold-moves-and-
brilliant-
alliances/#:~:text=Mergers%20and%20acquisitions%20(M%26A)%20are,operations%20from%20the
%20other%20corporation.

9. Amalgamation
 When two or more existing companies combine
together to form a new company, it is
amalgamation.
 All the combining companies are liquidated.
 A New company is floated to takeover their
businesses.
Absorption
 When one existing company takes over the
business of one or more existing companies, it is
absorption.
 The companies whose business is taken over are
liquidated.
 No New company is formed.
Gamma
Ltd.
Alpha Ltd.
Beta Ltd.
Y Ltd
X Ltd.

10. External Reconstruction Internal Reconstruction
 When an existing company is liquidated and a new
company is formed with the same shareholders to take
over its business, it is External Reconstruction.
 Sick companies with accumulated losses usually undergo
such reconstruction.
Reconstruction
 Reconstruction refers to ‘Reorganization of the Capital Structure’ of a company.
 It may result in the reduction of claims of both the shareholders and creditors against the company.
 Reconstruction may be necessary for those companies whose financial position is bad.
 Reconstruction can be ‘External Reconstruction’ and ‘Internal Reconstruction’.
 The capital of a company is reorganized to enable it
to make a fresh beginning, after eliminating
accumulated losses.
XYZ Co.
Ltd
Hard Luck Ltd
Lucky Ltd

11. THANK YOU