Merger, acquisition, and amalgamation are terms often used in the context of business combinations, but they represent distinct processes with different legal and financial implications:
Merger:
- In a merger, two or more companies come together to form a new entity.
- Original companies cease to exist independently and combine their assets, liabilities, and operations to create a new entity.
- Shareholders of the merging companies typically receive shares in the new company based on a predetermined ratio.
- Tie up can be either “mergers of equals” where the participating companies are similar in size and stature, or one company may absorb the other(s).
Acquisition:
- In an acquisition, one company (the acquirer or purchaser) takes over another company (the target).
- Purchase company assumes control over the target company by purchasing a majority of its shares or assets.
- Target company may continue to operate independently or be integrated into the acquiring company’s operations.
- Shareholders of the target company may receive cash, stock, or a combination of both as compensation for their shares.
Amalgamation:
- Amalgamation is a legal process where two or more companies consolidate their businesses to form a new entity.
- Unlike a merger, where a new entity is created, in an amalgamation, the existing companies combine to form a single entity.
- Assets, liabilities, and operations of the amalgamating companies are transferred to the new entity, and the original companies cease to exist.
- Shareholders of the amalgamating companies may receive shares in the new entity based on predetermined terms.
In summary, while mergers and amalgamations involve the creation of a new entity through the combination of existing companies, acquisitions entail one company taking over another. Each of these processes has its own legal and financial implications, and the choice between them depends on various factors such as the strategic objectives of the parties involved, regulatory requirements, and financial considerations.