DIFFERENCE BETWEEN MERGER AND AMALGAMATION

Merger:

Most companies are restructured through mergers and acquisitions. Although these terms are often used together or interchangeably, they are actually not the same thing. Mergers and acquisitions both expand the business externally. For example, when a business buys an existing business and instantly grows in size, increases its production levels, and has better chances for growth.

A merger occurs when two or more companies combine and create a new company. The companies in a merger typically are in the same industry or do similar things and want to either grow or diversify their offerings.

There are a number of advantages and reasons companies participate in mergers, including:

• Combining resources
• Removing trade barriers
• Taking away competition
• Creating a stronger company

Most often, one company is designated as the surviving company, which means its stock shares stay the same. The acquired company is called the target company. Shareholders of the target company receive cash, shares, or occasionally specific assets in exchange for their stock.

The process of creating a merger can be long and complicated. In many cases, it involves creating a shell partnership subsidiary that the surviving company uses to access its new assets. The surviving company can also buy the assets of the target company instead of purchasing its stock. The target company then settles its debts, pays shareholders, and slows down its operations.

If a large company merges with a smaller company and maintains its leadership and offices, most people say that that company has obtained the other company. When two fairly equal companies merge with each other, it is considered an alliance.

There are three types of mergers:

• Horizontal, which is done to eliminate a competing business from the market
• Vertical, where a company gives materials or services to the company it is acquiring, which concentrates operations and keeps the business moving seamlessly
• Conglomerate, which is done to diversify a business’s reach and products

Amalgamation

An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the combined assets and liabilities of both companies.

The term amalgamation has generally fallen out of popular use in the United States, being replaced with the terms merger or consolidation even when a new entity is formed. But it is still commonly used in countries such as India.

ALSO, Amalgamation is a merger process in which two or more companies combine their businesses to form an entirely new entity/company. Amalgamation is an appropriate arrangement wherein two or more companies operate in the same industry. Thus, amalgamation helps in reduction in operational cost due to functional synergy.

There are two types of amalgamations:

• Nature of purchase, which happens when one company acquires a business that is discontinued and the shareholders of that organization don’t have shares in the new company
• Nature of merger, which combines the assets and liabilities of all companies and includes all shareholders in the new business.

Difference and comparison between Merger and Amalgamation

Comparison	Merger	Amalgamation
Definition	Two or more companies are combined to form either a new or existing company absorbing the other target companies. A merger is a process to consolidate multiple businesses into one business entity. All the amalgamations are part of the merger.	It is a merger process in which two or more companies combine to form a new entity. All the mergers are not amalgamation.
Number of Entities Required	Minimum two companies are required as one absorbing company will survive after absorbing the target company.	Minimum three companies are required as an amalgamation of two companies results in a new entity.
Size of the Companies	The size of the absorbing company is relatively larger than the absorbing company.	The size of the target companies is comparable.
Impact on Shareholders	Shareholders of the absorbing entity retain their ownership. However, shareholders of the absorbed entity gain ownership in the absorbing company.	All the shareholders in the existing entities become shareholders in the new entity.
Impact on Shares	Shares of the absorbing company are given to shareholders of the absorbed company.	Shares of the new entity formed in the process are given to the shareholders of the existing entities.
Driver for Consolidation	The absorbing company mostly drives mergers.	The amalgamation process is initiated by both companies interested in the amalgamation process.
Accounting Treatment	Assets and liabilities of the absorbed/acquired company are consolidating.	Assets and liabilities of the existing entities are housed and transferred into the balance sheet of the newly formed entity.
Examples	Consolidation of two entities, Tata Steel and UK-based Corus Group, resulting in Tata Steel. Corus Group lost its identity in the process.	Consolidation of two entities, Mittal Steel and Arcelor, resulted in the new entity named ArcelorMittal. Both Mittal Steel and Arcelor Group lost their identity in the process.