AMALGAMATION

Amalgamation is defined as the combination of one or more companies into a new

entity. It includes:
•Two or more companies join to form a new company
•Absorption or blending of one by the other
Thereby, amalgamation includes absorption.
However, one should remember that Amalgamation as its name suggests, is
nothing but two companies becoming one. On the other hand, Absorption is the
process in which the one powerful company takes control over the weaker
company.
Generally, Amalgamation is done between two or more companies engaged in the
same line of activity or has some synergy in their operations. Again the companies
may also combine for diversification of activities or for expansion of services
Transfer or Company means the company which is amalgamated into another
company; while Transfer Company means the company into which the transfer or
company is amalgamated.
Example :- Existing companies A and B are wound up and a new company C is
formed to take over the business of A and B.
Amalgamation in the nature of merger:
In this type of amalgamation, not only is the pooling
of assets and liabilities is done but also of the
shareholders’ interests and the businesses of these
companies. In other words, all assets and liabilities of
the transferor company become that of the transfer
company. In this case, the business of the transfer or
company is intended to be carried on after the
amalgamation. There are no adjustments intended to
be made to the book values. The other conditions
that need to be fulfilled include that the shareholders
of the vendor company holding atleast 90% face
value of equity shares become the shareholders’ of
the vendee company.
Amalgamation in the nature of purchase:
This method is considered when the conditions for
the amalgamation in the nature of merger are not
satisfied. Through this method, one company is
acquired by another, and thereby the shareholders’
of the company which is acquired normally do not
continue to have proportionate share in the equity of
the combined company or the business of the
company which is acquired is generally not intended
to be continued.
Procedure and process of amalgamation.
The provisions relating to merger and amalgamation are contained in sections 390 to 396A in Chapter V of Part VI
of the Companies Act, 1956. Any proposal of amalgamation or merger begins with the process of due diligence, as
the proposal for merger without due diligence is like entering a tunnel with darkness growing with each step. The
due diligence process makes the journey see the light at the end of the tunnel – the light of wisdom to amalgamate
or not. Presently, the High Court enjoys powers of sanctioning amalgamation matters under section 394 of the Act
though it is a matter of time when this power will be exercised by National Company Law Tribunal, a forum where
Chartered Accountants shall be authorized to appear.
Mergers ——— M ——— Marriages
De-mergers —–D ——— Divorces
The beginning to amalgamation may be made through common agreements between the transferor and the
transferee but mere agreement does not provide a legal cover to the transaction unless it carries the sanction of
High court for which the procedure laid down under section 391 of the Companies Act should be followed for
giving effect to amalgamation through the statutory instrument.
Merger Means: Merger of two or more companies in such a manner that all assets and liabilities of the
amalgamating company immediately before the amalgamation, become the assets and liabilities of the
amalgamated company
Shareholders holding not less than 3/4th in value of the shares in the amalgamating company become
shareholders of the amalgamated company by virtue of the amalgamation.
Procedure for merger and amalgamation is different from takeover. Mergers and amalgamations are regulated
under the provisions of the Companies Act, 1956 whereas takeovers are regulated under the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations.
•The terms of amalgamation are finalized by the board of directors of the amalgamating companies.
•A scheme of amalgamation is prepared and submitted for approval to the respective High Court.
•Approval of the shareholders’ of the constituent companies is obtained followed
by approval of SEBI.
•A new company is formed and shares are issued to the shareholders’ of the transferor company.
 Methods of Accounting for Amalgamations

There are two main methods of accounting for amalgamations.

Pooling of interests Method: Under this method, the assets, liabilities and
reserves of the transferor company are recorded by the transferee company at
their existing carrying amounts. If, at the time of the amalgamation, the
transferor and the transferee companies have conflicting accounting policies, a
uniform set of accounting policies is adopted following the amalgamation. The
effects on the financial statements of any changes in accounting policies are
reported in accordance with AS 5.
Purchase Method: Under the purchase method, the transferee company
accounts for the amalgamation either
•By incorporating the assets and liabilities at their existing carrying amounts or
•By allocating the consideration to individual identifiable assets and liabilities of
the transferor company on the basis of their fair values at the date of
amalgamation. The identifiable assets and liabilities may include assets and
liabilities not recorded in the financial statements of the transferor company.