The Pros and Cons of Amalgamation of Companies

Amalgamation is a way to acquire cash resources, eliminate competition, save on taxes, or influence the economies of large-scale operations.

Amalgamation may also increase shareholder value, reduce risk by diversification, improve managerial effectiveness, and help achieve company growth and financial gain.

On the other hand, if too much competition is cut out, amalgamation may lead to a monopoly, which can be troublesome for consumers and the marketplace.

It may also lead to the reduction of the new company's workforce as some jobs are duplicated and therefore make some employees obsolete.

It also increases debt by merging the two companies together, the new entity assumes the liabilities of both.

 

In brief

◈  Pros

1. Can improve competitiveness.

2. Can reduce taxes.

3. Increases economies of scale.

4. Potential to increase shareholder value.

5. Diversifies the firm.

◈  Cons

1. Can concentrate too much power into a monopolistic firm.

2. Can lead to job losses.

3. Increases the firm's debt load.

 

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