Amalgamation

Amalgamation is combining of two or more companies to form a single company. It can happen is three ways which are Amalgamation, Absorption and external Reconstruction. Amalgamation provides benefits of economies of large-scale, tax savings, increase in cash resources, monopoly and elimination of duplicated product. The two terms significantly involved in amalgamation are transferee and tranferor. Transferor is the company which is amalgamated into another while transferee is thecompany into which the transferor is amalgamated. Amalgamation can be in nature of merger or purchase depending upon the terms of transaction. The consideration for amalgamation can be paid out via the method of Pooling out of interest method for amalgamation in the nature of merger and purchase method for the later. When consideration is more than the net asset value than, it gives rise to Goodwill. If the consideration is less than the Net asset value than the difference is credited to capital reserve. Factors which are considered while determining the goodwill at the time of amalgamation are:

• the foreseeable life of business or industry
• the effects of product obsolescence, changes in demand, and other economic factors.
• the service life expediencies  key individuals or group of employees
• Expected actions by competitions or potential competitors; and
• Legal, regulatory or contractual provisions affecting the useful life

Whenever expenses are incurred by the transferee at the time of amalgamation b y the nature of purchase, the expenses are debited via the goodwill account and the Bank account is credited.

The list successful amalgamation in the past consists of:

• Microsoft/Nokia acquisition
• Cairn/Vedanta
• Sum Pharma/Ranbaxy
• Lafarge/Holcin
• Pfizer/Warner-Lambert
•  Verizon/Vodafone
• AOL/Time Warner
• Exxon/Mobil
• Actavis & Forest Laboratories

Amalgamation has become the trend of the hour and many companies actively look forward for the same. M&A has both benefits and losses. On one hand it reduces the cost of production and increases shareholders wealth, but simuntaneously it disables local and small manufacturers sales. Meanwhile the product is available at cheaper rate but as the competition in the economy reduces, the big companies are in a better position to exploit it’s customers in the long run.

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