In Today’s News:
- Merger vs Amalgamation.
1. Merger vs Amalgamation
LVB Bank is in talks for a non-binding offer of amalgamation and merger.
(Note: This news is not very important. But the terms of merger and amalgamation is important)
Mains GS3 – Economic Development
Amalgamation vs Merger:
- Amalgamation is the consolidation or combination of two or more companies known as the amalgamating companies usually the companies that operate in the same or similar line of business to form a completely new company.
- Minimum no. of companies required for Amalgamation: 3
Pros of Amalgamation:
- Acquiring cash resources,
- Eliminating competition,
- Saving on taxes,
- Increased shareholder value,
- Reducing risk by diversification,
- Improvement in managerial effectiveness
- Helps in achieving company growth and financial gain.
Disadvantages of Amalgamation:
- If too much elimination of competition is taking place, amalgamation may lead to a monopoly.
- It may also lead to the reduction of the new company’s workforce as there will be duplication and therefore make some employees obsolete and in the long run, it will lead to loss of jobs.
- It also increases debt as the new entity assumes the liabilities of the companies amalgamated.
- The merger is a process wherein two or more companies/entities are combined to form either a new company or an existing company absorbing the other target companies.
- Minimum no. of companies required for Merger: 2
Pros of Merger:
- Bigger firms are more efficient in terms of economies of scale.
- More profit as many companies merges which will enable more research and development.
- Firms that were struggling can benefit from new management.
Disadvantages of mergers:
- Increased market share can lead to monopoly power and higher prices for consumers
- Job losses may happen if the firms joined are poorly performing.
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