Definition of Amalgamation
Amalgamation refers to the merger of two or more companies to form a new entity, during which the original companies cease to exist legally.
The combined entity's assets and liabilities are jointly considered. This concept is commonly utilized in corporate finance and accounting, particularly among companies in similar industries.
Examples include the amalgamation of Maruti Motors and Suzuki into Maruti Suzuki (India) Limited, and Vodafone and Idea into Vodafone Idea ('Vi').
Pros of Amalgamation
- Improves financial conditions by combining assets and liabilities.
- Allows for diversification or expansion of services.
- Enhances market competitiveness and tax savings.
- Increases economies of scale and share value.
- Reduces risks and boosts cash resources, administration, and financial growth.
Cons of Amalgamation
- May lead to a monopoly, eliminating healthy market competition.
- Can increase liabilities if a merging company has significant debts.
- Possible job losses due to surplus labour.
- Reduces consumer choices by limiting product variety.