10 Differences Between amalgamation and absorption

Difference between Amalgamation and Absorption

What is Amalgamation?

Amalgamation refers to the process of combining two or more companies into
a single entity. It usually involves the merger of smaller firms to form a
larger organization. The objective of amalgamation is to create synergy and
gain economies of scale. This process often involves sharing resources,
consolidating operations, and pooling expertise.

Examples of Amalgamation

A classic example of amalgamation is the merger between Citicorp and Travelers
Group in 1998, forming Citigroup. Another notable example is the merger between
Glaxo Wellcome and SmithKline Beecham in 2000, creating GlaxoSmithKline, one
of the largest pharmaceutical companies in the world.

Uses of Amalgamation

Amalgamation is often used to enhance market presence, broaden product offerings,
and achieve cost efficiencies. It allows companies to combine their strengths,
reduce competition, and expand into new markets. This strategy can lead to increased
shareholder value and improved competitiveness.

What is Absorption?

Absorption, also known as acquisition or takeover, occurs when one company takes
over another company and assumes control over its operations. The acquiring
company absorbs the target company, making it a part of its own corporate structure.
This process may involve the transfer of assets, liabilities, and personnel from
the target company to the acquiring company.

Examples of Absorption

An example of absorption is the acquisition of WhatsApp by Facebook in 2014.
Facebook absorbed the messaging app, integrating its features into its platform.
Another notable example is the acquisition of YouTube by Google in 2006, where
Google absorbed the video-sharing website into its services.

Uses of Absorption

Absorption is commonly used to expand market share, gain access to new technologies
or markets, and eliminate competition. It allows companies to grow rapidly by
integrating the operations of the acquired company into their existing business
model. Absorption can lead to increased market power and improved profitability.

Differences between Amalgamation and Absorption

Difference Area Amalgamation Absorption
Definition The process of combining two or more companies into a single entity. The process of one company taking over and assuming control of another company.
Voluntary vs Involuntary Voluntary action agreed upon by both companies. Can be voluntary or involuntary, often initiated by the acquiring company.
Surviving Entity A completely new entity is formed after the amalgamation. The acquiring company survives and the target company ceases to exist.
Legal Formalities Requires legal processes such as agreement, approval, and documentation. Requires legal processes such as due diligence, agreement, and regulatory approvals.
Control Mutual control is shared between the amalgamating companies. The acquiring company exercises control over the target company.
Objective Create synergy and gain economies of scale. Expand market share, access new technologies, and eliminate competition.
Financial Consideration Often involves the exchange of shares or payment through cash or other assets. Financial consideration is involved, usually in the form of cash or stock.
Relationship Amalgamation involves the joining of equals. Absorption implies that the acquiring company is stronger and takes control.
Timing Companies amalgamate at the same point in time. Absorption can happen at any point in time based on the acquiring company’s decision.
Impact Less disruptive to the existing corporate culture and employees. May result in changes to the corporate culture and potential job losses.


In summary, amalgamation and absorption are both strategic processes used in corporate
restructuring. Amalgamation focuses on the creation of a new entity through the combination
of two or more companies, while absorption involves one company taking over and absorbing
another company. The differences lie in the nature, control, objective, and impact of the
two processes.

People Also Ask

  • Q: What are the benefits of amalgamation?

    A: Amalgamation allows companies to create synergy, gain economies of scale, expand market presence, and enhance competitiveness.
  • Q: Is absorption only initiated by the acquiring company?

    A: No, absorption can be voluntary or involuntary, but it is often initiated by the acquiring company.
  • Q: Will employees of the target company be retained after absorption?

    A: The acquiring company may retain some employees, but there could be job losses as part of the integration process.
  • Q: How are mergers different from amalgamation and absorption?

    A: Mergers are similar to amalgamation, but the term “amalgamation” is often used for mergers involving companies of similar size. Absorption is a type of acquisition.
  • Q: Can amalgamation or absorption be reversed?

    A: While it is possible to reverse amalgamation or absorption, it can be complex and challenging due to legal and financial implications.

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