Difference Between Amalgamation and Demerger (With Table)

The fundamental distinction between Amalgamation and Demerger is that, in case of amalgamation, a company or business unit is combined with another company or business unit to form an altogether new entity. In contrast, demerger refers to the process of segregating a company or a business unit into two or more companies.

Amalgamation vs Demerger

The main difference between Amalgamation and Demerger is that in Amalgamation, the merging firms sell all of their current properties to the company that acquires them. On the other hand, in Demerger, the merging companies keep all of their existing properties. Only some elements or some of the rights, such as the undertaking, are transferred to another firm in a demerger agreement.

Amalgamation is the process of merging two or more businesses into a single entity. It can be beneficial to companies that are struggling financially, but it is also beneficial for companies that are expanding quickly or those looking to increase their market share or presence in a given region.

Demergers are common when companies want to separate one or more of their businesses into independent entities. The demerger typically involves the creation of a new entity that takes over some assets and/or operations of the company. This can be done via an internal reorganization or by distributing shares of the new entity to its shareholders.

Comparison Table Between Amalgamation and Demerger

Parameters of ComparisonAmalgamationDemerger
PartitionIn an amalgamation, the corporations are legally merged into a single entity.The demerger is the process of separating a firm into two halves.
LabelsThe firm that merges is known as the transferor, and the business that receives all of the merged company’s assets is known as the transferee.The demerged firm is the one that shares its rights, and the new business is the one that takes the shares.
ExistenceThe prior firms cease to exist after the merging procedure, and only the combined corporation remains.Both companies’ existence is allowed.
ProcedureAmalgamation is a procedure in which two or more firms combine their shares with those of another company to form a single entity.A demerger is a business transaction in which one firm shares part of its assets with another.
Controlling the flow of informationShares in the combined firm are only available to shareholders who own 75 percent or more of one of the merging businesses.If a share is invested in a firm before to demerger, the investor will be able to obtain the equivalent quantity of shares from the demerged company when the procedure is completed.

What is Amalgamation?

The savings from amalgamation may arise from reduced administrative and managerial costs, reduced duplication of services, reduction in work force, improved bargaining power, increased efficiency and reduced competition, if there is any.

A merger is a combination of two or more corporations which results in only

one corporation surviving (the other(s) being dissolved). In other words, the assets and liabilities of the merged corporation are transferred to the surviving corporation by operation of law and the surviving corporation continues its existence. A merger also can be defined as an acquisition that involves a change in corporate control but not necessarily a change in corporate name.

Merging companies can be advantageous for both parties involved. In many cases, the businesses will have some overlapping assets and interests, so combining them allows them to combine resources as well. The resulting business will have greater cash flow, which can support its operations more easily and lead to greater profits in the long run. Amalgamation can also result in economies of scale, which allow two businesses to achieve more with less than they could on their own.

Some industries require amalgamation as a matter of course. For example, medical doctors often join together in order to create hospitals, clinics and other medical centers. This gives them a centralized location where they can attend to patients and perform procedures together, making it easier for patients to access the services they need.

What is Demerger?

A demerger is a transaction in which some or all of a business’s assets or undertaking charge are transferred to another firm. The term “demerger” is derived from the merger, which is the inverse of a demerger. Demergers are used by companies to downsize, focus on core businesses, de-conglomerate, reduce debt, raise capital and increase shareholder value.

When one company takes over another and clearly established itself as the new owner, the acquired company and its assets are said to be absorbed into the buyer. The alternative to absorption is divestment, which is to sell off a part of the company which is not central to its business objectives and activities.

If one or more businesses owned by a single parent corporation (or holding company) are transferred to another corporation that will become their new owner or co-owner, this transaction can also be called a demerger.

In Australia and New Zealand, demergers are often known as line-of-business transfers. A spin-off is similar to a demerger in the sense that it separates parts of one company from another. However, in the case of a spin-off, there is no change in ownership.

Main Differences Between Amalgamation and Demerger

  1. In an amalgamation, the legal process of merging two institutions takes place, whereas in a demerger, a firm is separated.
  2. The merging corporations are known as transferors in amalgamation, and the outcome is a transferee business. A demerged firm shares its components with the new company when it demerges.
  3. Amalgamation is the process of merging two or more businesses into a single entity. On the other hand, The process of merging with another corporation is known as demerger.
  4. During an amalgamation, shareholders who own more than 75% of the shares in the transferor businesses become shareholders in the transferee. The demerger treats all shareholders equally, and the proportionality of their shares may be redeemed in the resultant firm.
  5. Only the transferee survives an amalgamation, whereas both firms can survive a demerger.

Conclusion

Amalgamation is the process of merging two or more companies to form one. Demerger is the process of separating a company into two or more.

An amalgamated entity is formed when the assets and liabilities of two or more entities are transferred to another entity. The amalgamated entity acquires all the assets and liabilities of the amalgamating entities, at their respective book values.

A demerged entity is formed when a company distributes its shares or assets to its shareholders. In a demerger, a part of an existing business (part spun-off) is transferred to another business (enabling company).

References

  1. https://search.proquest.com/openview/0c73d84ade2726c75f739241e88a3d9c/1?pq-origsite=gscholar&cbl=44221
  2. https://www.sciencedirect.com/science/article/pii/S0895435608002199