Amalgamation is defined as the combination of one or more companies into a new entity. It includes:

i. Two or more companies join to form a new company
ii. 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.

EXAMPLES Two good examples of amalgamations are as follows:

  1. Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited.
  2. Tata Sons operating in India and AIA Group based in Hong Kong amalgamated to form a new company called TATA AIG

Amalgamation in the nature of merger is an amalgamation where there is a genuine pooling not merely of assets and liabilities of the transfer or and transfree companies but also of the shareholders’ interests and of the businesses of the companies. The accounting treatment of such amalgamations should ensure that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the respective figures of the transferor and
transfree companies.
Amalgamation in the nature of merger is an amalgamation, as per para 3(e) of AS-14, which satisfies all the following conditions:
(i) All the assets and liabilities of the transfror company become, after amalgamation, the assets and liabilities of the transfree company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the   amalgamation.

(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transfree company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. For example, if transferor company is following straight line method of depreciation, the book value of the assets of the transferor company will be revised by applying the written down method of depreciation.
If any one or more of the above conditions are not satisfied in an amalgamation, such amalgamation is called amalgamation in the nature of purchase.

Recently announced Amalgamation
One of the recent amalgamations announced on the corporate front is of PVR Ltd. Multiplex operator PVR Ltd has approved an amalgamation scheme between Bijli Holdings Pvt Ltd and itself to simplify PVR’s shareholding structure. As per the management, the purpose of the amalgamation is to simplify the shareholding structure of PVR and reduction of shareholding tiers. It also envisages demonstrating Bijli Holdings’ direct engagement with PVR.
After the amalgamation, individual promoters will directly hold shares in PVR and there will be no change in the total promoters’shareholding of PVR.

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