Amalgamation: Definition, Pros and Cons, vs Merger & Acquisition

Amalgamation occurs in two forms – the nature of the merger and the nature of the purchase. The former is the combining entities wherein the assets and liabilities of the involved participants are pooled and collectively viewed along with the interests of shareholders and of the businesses these entities are a part of. So far as its accounting is concerned, the figures related to capital, reserves, assets, and liabilities represent the sum of everything reflected in the accounts of the amalgamating companies. There are two methods of accounting using which the accounts of combining entities amalgamate. Another is by the purchase method, applicable for combinations that occur through the nature of the purchase.

The latter applies to the accounts not identified as the accounts of the transferor company. The purchase method of accounting applies in the same way as in the case of the normal asset purchase. In the process, the transferee company accounts amalgamate by incorporating the assets and liabilities to be carried forward or by allocating individually identified assets and liabilities of the transferor. The calculation is based on the fair values applicable on the amalgamation date. Here, these assets and liabilities’ accounts must not be those belonging to the financial statements of the transferor entity.

By uniting through amalgamation, companies take advantage of significant economies of scale. Amalgamations typically happen between two (or more) companies engaged in the same line of business or that share what do you mean by amalgamation some similarity in their operations. Usually, the process involves a larger entity, called a „transferee“ company, absorbing one or more smaller „transferor“ companies before creating the new entity. The process is opted for to increase the value of the business, build capital, enjoy tax benefits, eliminate competition, have diversified business functions, expand a business, etc. In general, the objective of an amalgamation is to establish a unique entity capable of more effectively competing in the marketplace while also achieving economies of scale. In that respect, it is not all that different from an acquisition and similar strategies to aid corporate growth.

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PT Telkom Indonesia is all set to amalgamate for better and more significant business goals through the nature of the merger. It has picked Goldman Sachs as a considerable advisor to help with the process while having the Indonesian financial group PT Bank Mandiri that would look after the transactions involved. The Jakarta-listed company aims to offer broader broadband and wireless network connections to people across the region. This merger would take the entity’s value to a new height, making it worth over $30 billion. The shares in Telkom have surged to 8% to date in 2022, thereby increasing the company’s value to around $28 billion.

‘Gray’ vs. ‘Grey’: What is the difference?

Amalgamation leads to joining two or more entities as one, thereby making them the support system of each other. The process is opted for when entities find it better to work collectively than rely on third-party entities for various services. While it is the combination of two or more business units in corporate finance, amalgamation is defined as the combination of multiple financial statements in accounting. Though the goals and objectives of the two amalgamating entities are the same, differences in opinion are quite common. In addition, there is a vast difference in the culture the two companies followed as separate entities in the past. Therefore, it is recommended that the amalgamating companies clarify the doubts and agree on specific terms before proceeding with the merger or purchase.

1. For example, a group of companies reports their financials on a consolidated basis, which includes the individual statements of several smaller businesses.
2. While some amalgamations receive a warm welcome, a few invites criticism, and legal disputes.
3. An amalgamation is the combination of two or more companies into an entirely new entity.
4. Take your learning and productivity to the next level with our Premium Templates.
5. Amalgamation is the process of combining or uniting multiple entities into one form.

Amalgamations are one of several ways existing companies can join forces and create an entirely new company. While the term is rarely heard in the U.S. today, the practice continues both there and elsewhere around the world. In accounting, the amalgamation reserve is the amount of cash left over at the new entity after the amalgamation is completed. Take your learning and productivity to the next level with our Premium Templates. Access and download collection of free Templates to help power your productivity and performance.

In accounting, an amalgamation, or consolidation, refers to the combination of financial statements. For example, a group of companies reports their financials on a consolidated basis, which includes the individual statements of several smaller businesses. The nature of purchase depicts the acquisition of one company by another company where the acquired company’s shareholders choose not to have an equity share in the amalgamated company. Instead, the legal rights and authorities are shifted to the newly formed entity, combining them.

While amalgamations tend to involve voluntary agreements between the different parties, acquisitions can occur without the assent of the acquired company, in what’s known as a hostile takeover. Once approved, the new company officially becomes a legal entity and can issue shares of stock in its own name. In Canada, amalgamations must be approved by Corporations Canada and the relevant provincial and territorial governments. Canada defines amalgamation as „when two or more corporations, known as predecessor corporations, combine their businesses to form a new successor corporation.“

The Pros and Cons of Amalgamations

The newly formed entities carry financial and capital growth and development prospects and provide synergy benefits, which means benefits from the combination. Amalgamation makes two or more entities operate as one and benefit from the functions they offer. The similar nature makes the combining entities share common goals and objectives, which keep them working smoothly and efficiently. The process eliminates competition as two or more major entities join hands and start operating as entirely new firms. As mentioned, in a typical amalgamation, two or more companies agree to combine their assets and liabilities and form an entirely new company. In an acquisition, by contrast, one company purchases another (usually by buying up enough of its stock) and takes on its assets and liabilities, with no new company being created.

1. While the term is rarely heard in the U.S. today, the practice continues both there and elsewhere around the world.
2. The firms that liquidate are vendor companies, while the new one established to take over them becomes the purchasing company.
3. However, the operations are diverse, so they do not have to outsource services to a third-party entity, which saves a lot of costs.
4. In an acquisition, by contrast, one company purchases another (usually by buying up enough of its stock) and takes on its assets and liabilities, with no new company being created.
5. The process eliminates competition as two or more major entities join hands and start operating as entirely new firms.

Discovery Inc. began trading on the Nasdaq stock exchange under the symbol WBD. The terms of an amalgamation are finalized by the board of directors of each company involved. In India, for example, that authority resides in the High Court and Securities and Exchange Board of India (SEBI). Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. Amalgamation is the process of combining or uniting multiple entities into one form. Amalgamation can also refer to the combining of other types of organizations into a single one, such as nonprofit groups and entities in the public sector, including government agencies and municipalities.

For corporate entities to amalgamate, at least two companies of similar nature need to liquidate. The firms that liquidate are vendor companies, while the new one established to take over them becomes the purchasing company. The purchase provision is considered when the latter issues equity shares for investors to build capital. An amalgamation is, in fact, a specific subset within a broader group of “business combinations.” There are three main types of business combinations, which are outlined below in more detail. It’s important to understand the subtle differences when talking about mergers, acquisitions, and amalgamations.

How Amalgamations Work

Amalgamation is the process of combining two or more businesses to form one large entity. In the process, two separate units come together to create an entirely new company. The combination helps the businesses act collectively with respect to their expertise and make the new entity self-sufficed.

As you can see with the above examples, the difference comes down to the surviving companies. In an amalgamation, a new company is created, and none of the old companies survive. In corporate finance, an amalgamation is the combination of two or more companies into a larger single company. People, most often, confuse amalgamation with concepts like merger and absorption.