Amalgamation

Surabhi Agarwal

What is an Amalgamation ?
Amalgamation generally takes in two parts :
1. A

Merger is when two or more Organisation cease

to exist in their own right And their resource ,
assets and roles are consolidated into a new
entity which satisfies the needs of stakeholders .

2. A

Takeover is when two or more Organisation

cease to exist in their own right And their
resource , assets and roles are consolidated into a
new entity which satisfies the needs of
stakeholders . Often a takeover is when a larger
and more powerful body takes control of smaller
body.

According to Accounting Standard 14 ,

(a) Amalgamation means an amalgamation pursuant to the
provisions of the Companies Act, 1956 or any other statute which
may be applicable to companies.
(b) Transferor company means the company which is amalgamated
into another company.
(c) Transferee company means the company into which a transferor
company is amalgamated.
(d) Reserve means the portion of earnings, receipts or other surplus
of an enterprise (whether capital or revenue) appropriated by the
management for a general or a specific purpose other than a
provision for depreciation or diminution in the value of assets or
for a known liability.

Definition

WHY AMALGAMATE?
1.
2.
3.
4.
5.
6.
7.

Accelerated growth.
Enhance profitability through Economies of
Scale & operating Economies.
Synergy
Diversification of risk.
Reduction in tax liability.
Increased market power.
Managerial efficiency.

Conti

Market Entry
Strategic
Maglomania
Hubris-spirit
More effective allocation of resources.
Increased quality or quantity of services
Improved government or corporate support

Methods of Amalgamation

Pooling of interest method

- where all the assets , liabilities
and interest of shareholders are pooled

Purchase Method
- Acquisition of one company by
another for a price .

Pooling of interest

Assets , Liabilities and reserves of Transferor

company are recorded by the transferee
company at their existing carrying amount .

If Transferor and Transferee company have

conflicting accounting policies , a uniform set
of accounting policies are adopted following
the amalgamation.

Purchase Method

The Transferee company accounts for

amalgamation
- by incorporating the assets and liabilities
at their existing carrying amount or
- by allocation the consideration to
individual identifying assets and liabilities of
the transferor company on the basis of their
fair value t the time of amalgamation .

Live Examples

Asian Paints-Berger International

Year-2002 Asian Acquired 50.1% controlling
stake in Berger International. Deal Rs.57.6
Crores Berger International has no operation
in India but formed Berger Paints India Ltd. in
Calcutta(subsidiary) Objective:-enter into the
South East Asian market, growth. Such as
Singapore, Thailand, Myanmar, Bahrain,
Malta, UAE, Jamaica, Barbados and Trinidad,
and Tobago.

Ranbaxy-Tokyo based Nippon Chemiphar

Co. Ltd
2002 Pharmacy market Ranbaxy (RLL) Helps to
understand Japanese regulatory framework
and market environment. Product advantage

AOL sells call centre to Essar

April 1st 2008 Aegis BPO of Essar takes over
to acquire AOL call centre in white field It is
estimated at $100 million Payable in cash.
Purpose is to enhance its voice and non voice
offerings in the technological support space.

HP and Compaq Product line synergy

2002 Deal for $25 billion Exchange ratio
0.6325 in shares of HP for 1 share in Compaq
Compaq is good in consumer desk top, better
distribution net work HP is global leader in
printers and scanners. Purpose- large
customer base and elimination of computer
overlapping product lines .

ITC with ITC Bhadrachalam Paperboards

Ltd.(Tax Benefits)

2001 March End. ITCBPL- is subsidiary of ITC

ITCBPL had a accumulated losses of Rs.125
crores. The loss due to high depreciation rate.
ITC had a profit of Rs.1000 crores Take over
benefits one time to reduce tax of 100 crores.

Godrej Soap Took over Transelektra

Domestic products (cultural barriers)
One company may have entrepreneurial and
risk taking style of functioning. Other
company may have extreme bureaucratic and
procedural orientation. Managers at the
middle level were sent to various Godrej sites
for training so that they could have a first
hand experience of systems and practices and
such managers were playing as change
agents.

Warner Hindustan- Park Davis(Cultural

failure)

Warner- task focused and formal organization

Park Davis-people driven It had lowered their
performances. IBM with Lotus development
Corporation AT&T joint venture with Spanish
and Swiss Telecom