Amalgamation, Absorption, External Reconstruction and Internal Reconstruction - An Overview

Amalgamation, Absorption, External Reconstruction and Internal Reconstruction - An Overview

1. Dr.G.KARTHIKEYAN Assistant Professor of Commerce (Former Controller of Examinations) A.V.C.College (Autonomous) Mannampandal – 609 305 Mayiladuthurai Amalgamation, Absorption, External Reconstruction and Internal Reconstruction – An Overview

2. Present Commercial World dominated by M.N.Cs and ‘Size’ is considered as an advantage. Economies of Scale and Globalization of Trade and Industry have certainly given motivation for business combinations in the form of Mergers, Acquisitions and Reorganizations . ‘Take overs’, both unfriendly and friendly, have become the order of the day. It is important to know the different form of such takeovers, their legal position and the accounting treatment. INTRODUCTION

3. TATA and Air India: In November 2022, Air India, which is wholly owned by Talace Private Limited, a subsidiary of Tata Sons , announced a merger with Vistara , which is a 51:49 joint venture between Tata Sons and Singapore Airlines Limited. According to a press release by Tata Sons, this merger is expected to be finalised in March 2024. On January 27, 2022, Tata Sons, through its wholly-owned subsidiary Talace Private Limited (“ Talace ”), acquired a 100% stake in Air India. Vistara was founded in 2013 and currently operates in the Middle East, Asia, and Europe. Air India is expected to become India’s dominant domestic and international airline with a combined fleet of 218 aircraft following a merger. Source: https://etinsights.et-edge.com/top-3-mergers-and-acquisitions-in-india-bold-moves-and-brilliant-alliances/#:~:text=Mergers%20and%20acquisitions%20(M%26A)%20are,operations%20from%20the%20other%20corporation.

4. HDFC and HDFC Bank The merger between HDFC Ltd. and HDFC Bank Ltd . in April 2022. Currently, as reported by ET, this merger is estimated to reach a conclusion by June 2023. In essence, this merger has received all approvals from regulators such as RBI, Insurance regulatory and development authority of India (IRDAI), and the private shareholders as well. Touted as the biggest amalgamation in the history of corporate India , this merged entity will be branded as the HDFC Bank. Upon consolidation, this entity has a combined asset base of 18 lakh crore rupees as reported by ET in May 2023.  India’s premier housing finance company with and into HDFC Bank, Source: https://etinsights.et-edge.com/top-3-mergers-and-acquisitions-in-india-bold-moves-and-brilliant-alliances/#:~:text=Mergers%20and%20acquisitions%20(M%26A)%20are,operations%20from%20the%20other%20corporation.

5. PVR and INOX Leisure  Initially announced in the year 2022, the erstwhile rivals in the industry have pledged to consolidate their business in a bid to create one of the largest multiplex chains in India. As reported by CNBC, with the merger of the two top multiplex chains in India , the new entity aims to expand its network up to 1500 and tap into markets in tier 3, 4, and 5 cities . The combined entity will be named PVR Inox Ltd . Cinemas launched after the merger will carry the new brand name of PVR INOX ltd.   Source: https://etinsights.et-edge.com/top-3-mergers-and-acquisitions-in-india-bold-moves-and-brilliant-alliances/#:~:text=Mergers%20and%20acquisitions%20(M%26A)%20are,operations%20from%20the%20other%20corporation.

6. Amalgamation When two or more existing companies combine together to form a new company , it is amalgamation. All the combining companies are liquidated . A New company is floated to takeover their businesses. Absorption When one existing company takes over the business of one or more existing companies, it is absorption. The companies whose business is taken over are liquidated. No New company is formed .

7. External Reconstruction Internal Reconstruction When an existing company is liquidated and a new company is formed with the same shareholders to take over its business, it is External Reconstruction. Sick companies with accumulated losses usually undergo such reconstruction. Reconstruction Reconstruction refers to ‘ Reorganization of the Capital Structure ’ of a company. It may result in the reduction of claims of both the shareholders and creditors against the company. Reconstruction may be necessary for those companies whose financial position is bad . Reconstruction can be ‘ External Reconstruction ’ and ‘ Internal Reconstruction’. The capital of a company is reorganized to enable it to make a fresh beginning, after eliminating accumulated losses . Hard Luck Ltd Lucky Ltd

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