Mergers and Amalgamations

According to Prof. L.H.Haney, merger is, “a form of business organization which is established by the outright purchase of the properties of constituents, organizations and the merging or amalgamating of such properties into a single business unit”.

In a merger, one business unit acquires the other business unit. The acquiring company retains its entity while the acquired loses its entity.

Examples of Mergers

  • Acquisition of Modern Foods, Kissan, Tata Oil Mills Co., Ltd (TOMCO), Kwality Walls etc., by Hindustan Level Limited(HLL).
  • Acquisition of ANZ Grindlays Indian operations by Standard Chartered, Times Bank by HDFC Bank, Bank of Madura by ICICI Bank,
  • Acquisition of Voltas and Allwyn by Electrolux. Subsequently Electrolux’s – Indian operations were acquired by Videocon International.
  • Recent international mergers include – acquisition of Gillette by P&G, Betapharma by Ranbaxy, IBM’s PC division by Lenovo, Compaq by Hewlett Packard(HP) etc.

Amalgamation

In Amalgamation, two or more companies combine to create a new company. All the combining companies lose their separate existence and entity. The new company takes over all existing assets and liabilities of the companies amalgamated. The new company allots its shares to the shareholders of the amalgamating companies.

Example of Amalgamation

For e.g. Arcelor, the world’s largest steel company (which has been since been acquired by Mittal Steel) came into being as a result of amalgamation. 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 as Arcelor.

Differences between Merger & Amalgamation

Though mergers and amalgamations are form of complete consolidation there are certain differences between them. They are given in the following table:

Points of distinction Acquisition Merger
1. Formation Two or more independent units combine together to form a new unit. One unit acquires another. Generally the larger and financial stronger unit takes over a smaller unit.
2. Identity The combining units lose their individual identity. The acquirer retains the identity whereas the acquired company looses its identity. For e.g. when HDFC Bank acquired Times Bank, the acquirer (HDFC Bank) retained the identity whereas the acquired (Times Bank) lost its identity.
3. Shareholders Shareholders of all the combining units become shareholders in the newly created enterprise. Shareholders of the acquired company become the share holders of the acquiring company.
4. Shares Shares of the newly created entity is given to the shareholders of the combining units. Shares of the acquirer company is given to the shareholders of the acquired company.
5. Initiative The initiative to amalgamate is generally taken by the combining units. Initiative is generally taken by the acquirer.

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