Amalgamation

Amalgamation

Combining two or more businesses into one new entity is an amalgamation. A merger and an amalgamation differ because neither business exists as a separate legal entity. Amalgamation is a tactic organisations use to lessen internal competition and increase the range of their product offerings. Benefits accrue to both the acquirer and the acquired businesses. It is a suitable corporate restructuring technique to effect positive transformation and create a competitive business environment. 

What is an amalgamation? 

Amalgamation is the process of joining two or more companies to create a single, sizable organisation. Two distinct divisions combine to form a completely new company through the process. The merger enables the enterprises to function jointly following their areas of specialisation and creates an independent new organisation. 

Unlike a typical merger, this one ends in the demise of both businesses. As a result of the stronger transferor firm being absorbed by the weaker transferee company, a new company with more resources and a wider customer base is formed. Combinations can increase financial resources, eliminate competitors, and lower company tax obligations. 

Understanding amalgamations 

In addition to transfers of businesses and/or shares, Singapore-incorporated companies seeking to restructure or justify their company structure should be aware of the possibility of completing an amalgamation in accordance with the Companies Act (Chapter 50 of Singapore) (the “Act”). 

The Act allows for several different amalgamations. A court order can be necessary, depending on the situation. However, the purpose of this note is to discuss solely the amalgamation procedures under the Act that do not require a court order, referred to as “voluntary amalgamations”, and the concerns to consider while completing such activity. 

Amalgamations sometimes involve two or more companies with some operational overlap or operations in the same economic sector. Businesses may merge to diversify their operations or increase the scope of their services. Investment bankers, attorneys, accountants, and executives from each joining company are often needed for an amalgamation.

The bankers often conduct detailed financial modelling and appraisal to assess the proposed transaction and advise the individual firms. As neither of the two corporations are independent legal entities, amalgamation differs from a merger. An entirely new entity with the merged assets and liabilities of the two companies is created through the amalgamation procedure. 

Pros and cons of amalgamations 

The amalgamation process includes benefits and drawbacks like any other corporate or financial procedure. All parties involved in the amalgamation process must fully comprehend the process, including all its pros and cons. 

The pros of amalgamation are: 

  • The companies no longer compete with one another. 
  • Reduced operating costs are possible. 
  • The prices of the products remain stable. 
  • R&D facilities can expand. 

The cons of amalgamation are: 

  • Healthy competition could be eliminated as a result of amalgamation. 
  • The former business no longer has its reputation or identity. 
  • There can be more debt to repay. 
  • Combining businesses risks creating a monopoly, which is not always advantageous. 
  • The number of employees is reduced. 

Types of amalgamation 

Merger and purchase procedures are two different forms of amalgamation. In both situations, a new company with consolidated assets and liabilities replaces the old firms’ legal entities. 

  • Merger  

The two businesses merge their shareholder assets, liabilities and interests using the merger amalgamation procedure. When the merger is completed, the company’s operations can continue without requiring revisions to book values for accounting purposes. Although the equity belongs to the new company, the shareholders retain ownership. 

  • Purchase  

The purchase approach operates differently in terms of structure and accounting. It does not satisfy the amalgamation requirements for a merger. The shareholders of the purchased company do not retain a proportionate ownership stake in the newly created company, even when one company purchases the other. The business of the acquired firm does not remain as it would under the merger procedure. 

 

Example of amalgamation 

Amalgamations can be understood through the following example. Some mergers are well received, while others draw ire and give rise to legal issues. The two biggest grocery chains in the United States, Kroger and Albertsons, are one such merger tha received a lot of attention. Given that the top two grocery stores in the nation intended to join, the anticipated merger was likely create a monopoly in the food sector. 

Another example that we can look at is the new company known as ArcelorMittal which was created via the amalgamation of two companies, Mittal Steel and Arcelor. In the process, the Arcelor Group and  Mittal Steel both lost their identities. 

Frequently Asked Questions

The amalgamation procedure in the US is regulated by the Securities and Exchange Commission (SEC). The companies must file a joint proxy statement with the SEC to complete the amalgamation procedure.  

This statement must include information about the terms of the merger, the reasons for the merger, and the expected benefits of the merger. After the joint proxy statement is filed, the companies must hold a shareholder meeting to vote on the merger.  

If the shareholders approve the merger, the SEC will issue a final order approving the merger. 

Amalgamation is done to reduce competition and gain substantial economic benefits. Two or more entities can operate as one through amalgamation and get access to the services they each provide.  

The merging companies share the same goals and objectives due to their similar nature, which keeps them operating smoothly and effectively. Once two or more influential organisations join forces and launch operations as completely new businesses, the process reduces competition. 

The pooling of interests and the purchase methods are the two primary accounting methods for amalgamations. 

Amalgamation is one of the strategies used in mergers and acquisitions to help companies avoid competitors and expand their product lines. Both the acquirer and the acquired company stand to gain from it. 

Additionally, it may help: 

  • To advance and prosper financially 
  • To get financial resources 
  • Reduce competition 
  • Tax reduction 
  • Managing effectively 
  • Large-scale operation economies 
  • Boost the value of shareholders 
  • Diversifying to lower the level of risk 

Related Terms

    Read the Latest Market Journal

    Back in Business: The Return of IPOs & Top Traded Counters in March 2024

    Published on Apr 17, 2024 362 

    Start trading on POEMS! Open a free account here! At a glance: Major indices continue...

    Weekly Updates 15/4/24 – 19/4/24

    Published on Apr 15, 2024 64 

    This weekly update is designed to help you stay informed and relate economic and company...

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 144 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 82 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 109 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 191 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 98 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 136 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you

    IMPORTANT INFORMATION

    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  

     

    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com