Amalgamation
Amalgamation is the merger of two or more companies into a single entity, where either one company absorbs the other (merger by absorption) or both companies combine to form an entirely new company.
In India, amalgamations are governed by the Companies Act 2013 (Sections 230–232) and are subject to approval from the National Company Law Tribunal (NCLT). The process requires approval from shareholders, creditors, and regulators such as SEBI (for listed companies), the Competition Commission of India (if the combined entity crosses merger notification thresholds), and sectoral regulators where applicable.
Shareholders of the transferor (merging) company receive shares of the transferee (surviving) company in a specified swap ratio, determined by independent valuation. The swap ratio is a critical point of contention and negotiation — minority shareholders in Indian mergers have occasionally challenged ratios they perceived as unfavorable through NCLT proceedings or SEBI complaints.
The 2019 merger of HDFC Bank's parent company HDFC Ltd into HDFC Bank was one of India's most closely watched amalgamations. After receiving all regulatory approvals — including from RBI, SEBI, NCLT, and stock exchanges — the merger was completed in July 2023. HDFC Ltd shareholders received 42 HDFC Bank shares for every 25 HDFC Ltd shares held. The combined entity became one of the world's largest banks by market capitalisation at the time of merger completion.
From a tax perspective, amalgamations in India can be structured as tax-neutral under Section 47 of the Income Tax Act if the conditions for a 'qualifying amalgamation' are met — primarily that at least 75% of the consideration to shareholders is in the form of shares of the transferee company, not cash. Shareholders do not pay capital gains tax at the time of merger; instead, the cost and holding period of the original shares carry over to the new shares received.
For retail investors, monitoring the period between merger announcement and completion is important: the two stocks typically trade with a 'merger arbitrage' spread reflecting deal risk, regulatory timelines, and swap ratio mechanics. The swap ratio also affects the ongoing research and valuation of the combined entity.