Introduction:
Amalgamation is the blending of two or more existing companies into one company. For example, if two existing companies such as Dangote Flour and Flour Mill Plc go into liquidation to form a new company Dan Flour Mill, it will be a perfect example of amalgamation.
Amalgamation can also be defined as the combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity; a completely new entity is formed to house the combined assets and liabilities of both companies. This sense of the term amalgamation has generally fallen out of popular use, and the terms “merger” or “consolidation” are often used instead.
Reasons for Amalgamation
The main objective of amalgamation is to achieve synergetic benefits which arise, when two companies can achieve more in combination than when they are individual entities. Asides this however, there are other reasons which shall be found below-
(i) To reap economies of scale
(ii) To eliminate competition
(iii) To build up goodwill
(iv) To reduce the degree of risk through diversification
(v) Managerial effectiveness.
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