Merger and amalgamation are the terms used in the context of financial markets. We all have seen avengers movie where two or more superheroes join hands to fight a villain in the case of the corporate world similar thing happens when two companies come together either through merger or amalgamation to form a bigger company and take on the villains which in case of companies are the competitors. In order to get a better understanding of both terms one should look at some of the differences between merger and amalgamation –
Mergers Vs Amalgamation
Meaning of Merger and Amalgamation
A merger is a process in which two or more companies combine to form a new company, in simple words in the case of merger two companies that are in the same business decides to come together as both companies are more or less of equal size and business. While an amalgamation, on the other hand, is when one company takes over another company, and the two companies become one. In the case of amalgamation, the company that’s taking over is more powerful and bigger and hence after amalgamation, the amalgamated company becomes even bigger and stronger.
Ownership of New Company
In a merger, the ownership of the new company is divided between the companies involved based on the value of their contribution as in a merger, both companies contribute their assets and liabilities to the new company, while in an amalgamation, the shareholders of the acquired company become shareholders of the acquiring company as in the case of amalgamation bigger company acquires the assets and liabilities of the smaller company.
Future of the Company
In case of a merger, both companies merging will have no future as both companies cease to exist and a new company is created which will have a different legal status, different brand name, and so on while in case of amalgamation, it is the acquired company which cease to exist and acquiring company will continue to operate with same legal status and the same name as before. In simple words, a merger is a complete overhaul of the companies involved while amalgamation is only a partial overhaul of the companies involved.
Impact on Competitors
In the case of merger, competition is partially removed in the sense that when two competitors merge together a new company is formed and hence there is only a partial reduction in the competition while in the case of amalgamation when acquiring company acquires another company the competition from acquired company is completely finished as the acquired company is amalgamated into the acquirer company.
Market Share
In case of a merger the market share of the market is shared between the two companies as both companies combine in the merger while in case of amalgamation, the market share of the market is completely taken by the acquirer company as the acquired company is completely out of the market due to amalgamation.
Employees Problem
In the case of both mergers as well as amalgamation, there can be duplication of many job roles but when it comes to amalgamation the bigger company has bigger stakes, and hence the employees of the acquired company are more likely to suffer as compared to the acquirer company when it comes to merger employees of both companies are likely to suffer as there will be job cuts due to duplication of many job roles or job description.
As one can see from the above while both strategies can offer benefits such as increased economies of scale, enhanced market power, and improved efficiency, they also come with potential risks and challenges, such as cultural clashes, integration difficulties, and regulatory hurdles and hence it is more important for companies considering a merger or an amalgamation to carefully weigh the pros and cons and then take any decision so as to ensure a successful outcome.