Definition
Amalgamation refers to the combination of two or more companies into a completely new entity. A merger, on the other hand, is a process where one company absorbs another and the latter ceases to exist. The key distinction is that in a merger, the existing companies maintain their identities in some form, while in an amalgamation, all merging firms lose their previous identities to form a totally new firm.
Key Takeaways
- In a merger, two or more companies voluntarily combine their operations to form a new entity. In contrast, an amalgamation involves the total absorption of one company by another, with the latter keeping its identity but incorporating the assets and liabilities of the other company.
- A key distinction between a merger and an amalgamation is in terms of ownership and control. In a merger, the shareholders of all participating companies retain an interest in the newly formed company. In an amalgamation, on the other hand, the shareholders of the dissolved company cease to have an interest in the surviving company.
- Another crucial difference is in continuity of operations. In a merger, the combined entity continues to operate as a new company but with a broader base of operations and increased capacity. In an amalgamation, the absorbed company ceases to exist, and only the absorbing company remains operational.
Importance
Understanding the difference between Amalgamation and Merger is crucial in finance as each term refers to different ways of combining businesses with distinct legal and financial implications.
A merger describes the process where two or more companies join together into one entity, often to improve market share or efficiency and typically the companies are on an equal footing.
On the other hand, amalgamation is a process where one or more companies liquidate their businesses and transfer all assets and liabilities to an entirely new entity which effectively may shield against certain liabilities.
The distinction between these two terms impacts the companies involved across several areas such as tax treatments, restructuring procedures, influence on company structures, legal consequences, and shareholders rights.
Therefore the understanding of these terms is essential for informed decision-making in financial management, investment, and corporate restructuring.
Explanation
Amalgamation and merger are two business techniques used for the restructuring of companies, primarily used as strategies for expanding businesses, combining resources, and achieving higher efficiency and market dominance. Amalgamation is often used to consolidate companies with similar types of businesses or business activities. This is done with the purpose of increasing the company’s size, consolidating resources, expanding customer base, and growing market share.
In effect, an amalgamation strategy is used when companies want to combine their strengths, minimize competition, and attain economies of scale. On the other hand, a merger is a strategy used by companies to expand their reach in new markets or broaden their product portfolio. Instead of consolidating similar companies, mergers often involve companies that complement each other in order to offer more comprehensive services or products to their customers.
This might involve merging a production company with a distribution company, for instance, to control more parts of the supply chain. Mergers are usually undertaken to increase market reach, attain diversification, or achieve operational synergy. They serve the purpose of providing diversified products, reaching new audiences, or gaining more control over their suppliers or distribution channels.
Examples of Difference Between Amalgamation and Merger
Disney and Pixar: This is an example of a merger because both companies combined together to form a single entity, retaining both identities. Disney and Pixar joined forces to leverage their distinct strengths – Disney’s marketing and consumer product expertise and Pixar’s quality storytelling through technology, further expanding the realm of animated films.
Exxon and Mobil: In one of the largest mergers in U.S. history, Exxon and Mobil joined together to create ExxonMobil back in
This was a merger because the companies simply agreed to combine their resources and become a single entity, while keeping the identity and brands of both companies alive.
Glaxo Wellcome and SmithKline Beecham: This is an example of an amalgamation, where two entities, Glaxo Wellcome and SmithKline Beecham, joined together to create a new entity, GlaxoSmithKline. This process took place in the year 2000, creating the world’s second-largest pharmaceutical company. In this case, both the companies ceased to exist in their original form and a completely new entity was formed.
FAQ: Difference Between Amalgamation and Merger
What is Amalgamation?
Amalgamation is a process where one or more companies combine to form a new company, which takes over the operations of the combining entities. All the existing companies lose their identity, and a completely new company is formed.
What is a Merger?
A merger is when two or more companies decide to combine their operations to enhance competitiveness, cut costs, or expand market share. In a merger, one company typically absorbs the others, and the absorbed companies cease to exist.
What is the key difference between Amalgamation and Merger?
The key difference between amalgamation and merger lies in the outcome. In amalgamation, a brand new entity is formed to take over the operations of the combining firms, while in a merger, one firm typically absorbs the other firm(s) and they cease to exist.
Which is more complex, an Amalgamation or a Merger?
An Amalgamation is typically viewed as more complex than a merger because it involves forming a completely new company, which may require more legal and administrative proceedings compared to a merger.
Can an Amalgamation be considered as a type of merger?
Yes, an Amalgamation can be considered as a specific type of merger where all the combining companies dissolve to form a new one. In this case, it is often termed as a ‘consolidation merger’.
Related Entrepreneurship Terms
- Business combination
- Integration process
- Company dissolvement
- Legal entity
- Consolidated financial statement
Sources for More Information
- Investopedia: A comprehensive source for financial knowledge including the difference between an Amalgamation and a Merger.
- Economics Help: Provides simple yet effective explanations and comparisons of various economic and financial terms.
- Corporate Finance Institute: An authoritative source for anything related to Corporate Finance.
- Accounting Tools: Offer comprehensive, easy-to-understand insights into both accounting and finance terminologies.
