Both amalgamation and merger are forms of corporate restructuring which involve consolidation of two or more companies. There are certain differences between these terminologies as explained below:
Contents:
- Definitions and explanations
- Difference between amalgamation and merger
- Amalgamation versus merger – tabular comparison
Definitions and explanations
Merger:
Merger is a form of corporate restructuring that involves the following:
- Two or more companies are combined to form an altogether new entity; or
- One or more target companies get absorbed into an existing company i,e., the merged company
In type 1, both the merging companies cease to exist and a new company is formed. This new company will hold the assets and liabilities of all the merging companies. This form of merger is termed as ‘amalgamation’ which has been explained in further detail separately.
In type 2, the target company/companies cease to exist and get absorbed into an existing company. No new company is formed and the merged company continues to exist. This form of restructuring can take 2 forms:
- The existing company takes over another company whose business is discontinued. In this form the shareholders of the target company do not hold proportionate shares in the merged company.
- The assets and liabilities as well as the shareholder interests of the target company/companies are combined with that of the existing merged company.
Mergers are undertaken to achieve certain operational or financial synergies that may result from the merger of the companies. Mergers may also be preferred by profit making companies to absorb the losses of loss making companies and gain tax savings.
Amalgamation:
Amalgamation is a form of merger. Amalgamation is a form of corporate restructuring wherein two or more companies combine to form an altogether new company. Amalgamation results in creation of a new amalgamated company and the amalgamating companies cease to exist.
Amalgamation is a suitable form of restructuring when multiple companies operate in the same or similar line of business. The companies seek to take advantage of synergies by combining their businesses. The synergies achieved may be operational synergies and/or financial synergies.
Amalgamating companies often aim to combine their expertise and resources to gain a larger combined market share than the sum total of their individual market shares to edge out competition.
Difference between amalgamation and merger:
The key points of difference between amalgamation and merger have been detailed below:
1. Meaning
- Amalgamation involves combining of two or more existing companies to form a new company.
- Merger can be either in the form of amalgamation above or may involve takeover of one or more target companies by an existing company.
2. Resultant entity
- In an amalgamation a new company is mandatorily formed to house the assets and liabilities of the combined companies. The amalgamating companies cease to exist.
- In a merger, other than an amalgamation, a new company is not formed as an existing company continues as merged company after the takeover of target company/companies.
3. Shareholders
- In amalgamation, shareholders of the amalgamating companies get proportionate shareholding in the new amalgamated company.
- In a merger, other than an amalgamation, shareholders of the target companies may or may not get proportionate shareholding in the merged company depending on the type of merger.
4. Transfer of assets and liabilities
- Amalgamation involves transfer of assets and liabilities of both the amalgamating companies into the new amalgamated company.
- In a merger, other than amalgamation, the existing company retains its asset and liabilities and absorbs the assets and liabilities of the target companies.
5. Number of companies involved
- Amalgamation involves a minimum of 3 companies – two or more amalgamating companies and one amalgamated company.
- Merger may involve a minimum of 2 companies – one existing company taking over a target company.
6. Size of the companies involved
- In amalgamation, amalgamating companies are usually of comparable size looking to amalgamate to achieve operational/financial synergies.
- In merger, other than an amalgamation, the absorbing company is generally larger in size than the target company it is taking over.
Amalgamation vs merger – tabular comparison
A tabular comparison of amalgamation and merger is given below:
|
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| Meaning | ||||
| Combining of 2 or more companies to form a new amalgamated company | An existing absorbing company taking over one or more target companies | |||
| Resultant entity | ||||
| A new entity is formed | No new entity is formed. Existing entity absorbs the target companies | |||
| Shareholders of amalgamating/target companies | ||||
| Get proportionate shareholding in new amalgamated company | May or may not get proportionate shareholding depending on the type of merger | |||
| Transfer of assets and liabilities | ||||
| Transferred into new amalgamated entity | Retained in absorbing company | |||
| Number of companies involved | ||||
| Minimum 3 | Minimum 2 | |||
| Size of companies involved | ||||
| Companies are comparable in size | Absorbing company is generally larger in scale and size than target companies | |||
Conclusion – Amalgamation vs merger:
Both amalgamations and mergers are forms of corporate restructuring. Amalgamation is a form of merger – so all amalgamations are mergers but all mergers need not be amalgamations.
The purpose for amalgamations and mergers can range from achieving operational and financial synergies to edging out competition and achieving tax advantages. The type of corporate restructured opted for by the companies would depend on the nature of their business, structure of the companies and the ultimate goal that is sought to be achieved.
