topic of Financial Management

1. AMALGAMATION
•MEANING
•TYPES
•MOTIVES

4. Objectives of amalgamation
 Companies sometimes amalgamate to avail of various
benefits under the corporate tax regime.
 This also brings in the advantages of significant economies
of scale.
 There are instances where companies enter into
amalgamation with close competitors to eliminate
competition in the market. However, in some cases, it
creates a monopoly in the market, which is not a desirable
outcome.
 It offers opportunities for future growth and development –
both financial and capital.
 Inherently, it provides synergy benefits, meaning that the
companies enjoy benefits from combining operations.

5. Amalgamation Process
The process can be broken into the following five
steps:
1) The board of directors of the combining entities finalizes the
detailed terms and conditions of the amalgamation
agreement.
2) Preparation of the scheme of amalgamation, which is then
submitted to the respective High Court for approval.
3) Obtain the consent of the shareholders of the combining
companies, which is submitted to SEBI for approval.
4) Form a new company and issue its shares to the
shareholders of the transferor company.
5) Liquidate the weaker transferor company and transfer all the
assets and liabilities to the stronger transferee company

6. Examples of Amalgamation
1) Maruti Suzuki India Limited: In 2002, India’s
Maruti Udyog Limited amalgamated with Suzuki
Motor Corporation based in Japan to form the
new entity – Maruti Suzuki.
2) Tata AIG General Insurance Company
Limited: In 2001, Tata Group and the American
International Group, Inc. (AIG) amalgamated to
form the new Tata AIG General entity

7. Types of Amalgamation

8. 1) Pooling of Interests Method: In this
accounting method, the transferor entity’s assets
and liabilities are transferred to the books of the
transferee entity at their current carrying value.
2) Purchase Method: In this amalgamation
method, the transferee entity records the assets
and liabilities of the transferor entity either at
their current carrying value or based on their fair
value on the date of amalgamation.

9. Advantages of Amalgamation
1) Larger scale of production
2) Increase share in the market
3) Best situation for the reviving the business of
falling companies
4) revenue and growth
5) Service of specialist & managerial effectiveness
(e.g , marketing or operation )
6) Easy control & increases good will
7) Elimination of competition

10. Disadvantages of Amalgamation
1) Loss of good will and identity of the existing
companies
2) Amalgamation among substantial players in
the industry result in a monopoly market
3) Deterioration of capital structure due to the
additional debt of one of the entities
4) Elimination of healthy competition

11. Amalgamation vs
Merger

12.  In amalgamation, companies combine to form an entirely new
entity. In contrast, in a merger, companies combine, either in
the formation of a new company or the existence of one of the
combined companies is retained.
 The process in most cases consists of three companies, while a
merger in most cases involves only two companies.
 Companies of comparable sizes usually get involved in an
amalgamation process. In contrast, the size of companies
involved in mergers varies significantly as an entity acts as the
absorbing company that absorbs the relatively more minor
company.
 The asset and liabilities of the combining companies are
transferred to the newly formed entity. In contrast, in the case
of a merger, the assets and liabilities of the relatively minor
entity are consolidated into the absorbing entity.

13. Thank you