What is Amalgamation? Types of Amalgamation

What is Amalgamation? Types of AmalgamationAmalgamation is an arrangement where two or more companies consolidate their business to form a new firm or become a subsidiary of any one of the companies.

For practical purposes, the amalgamation and merger of the terms are used interchangeably.

However, there is a slight difference. The merger involves the fusion of two or more companies into a single company where the identity of some of the companies gets dissolved.

On the other hand, amalgamation involves dissolving the entities of amalgamating companies and forming a new company having a separate legal entity.

Examples of Amalgamation

Examples of horizontal combinations are;

  • French steel company Usinor amalgamated with Aceralia of Spain and Arbed of Luxembourg in the year 2002, and the new company formed out of this amalgamation was named Arcelor.

Types of Amalgamation

Normally, there are two types of amalgamations. The first one is similar to a merger where all the assets and liabilities and shareholders of the amalgamating companies are combined.

The accounting treatment is done using the pooling of interests method. It involves laying down a standard accounting policy for all the companies and then adding their relevant accounting figures like capital reserve, machinery, etc. to am ye at revised figures.

The second type of amalgamation involves the acquisition of one company to another company.

In this, the shareholders of the quired company may not have the same equity rights as earlier, or the business of the acquired company may be discontinued.

This is like the purchase of a business. The accounting treatment is done using a purchase method.

It involves recording assets and liabilities at their existing values or evaluating them based on their fair values at the time of amalgamation.

Amalgamation Vs. Merger

Companies merge to consolidate their assets to have more chances of survival and growth and also to have better access to new markets.

While the outcome of both mergers and amalgamations is the same, that is to have a larger company with more assets arid customers, and there are technical differences in the two terms that will be discussed in this article.

Takeovers, acquisitions, mergers, and amalgamations are commonplace these days. The potential to grow is the prime motive behind both mergers and amalgamations.

If we look up the dictionary, OED defines mergers and amalgamations as acts of combining two or more commercial entities into one or merging of two or more business concerns into one. With their definitions being nearly the same, let us find the differences through their features and purposes.

As we knew earlier, a merger is a fusion of two or more entities, and it is a process in which the identity of one or more entities is lost.

Amalgamation is the blending of two or more business entities in a fashion that both lose their identities, and a new separate entity is born.

In the case of a merger, the assets and liabilities of a company get vested in the assets and liabilities of another company.

The shareholders of the company being merged become shareholders of the larger company (as when two or smaller banks merge with a larger bank).

On the other hand, in the case of amalgamation, shareholders of both (or more) companies get new shares allotted that are of a new company altogether.

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