Implications of AmalgamationIntroductionAmalgamation is the combination of two or more companies to become one entity. They either unite or blend or combine (Fletcher, 1922). It involves combination of assets and liabilities. The shareholders’ liabilities can also be transferred during the process of amalgamation. Amalgamation has become common in today’s business trends. Companies come together to form a stronger, stable and large company (Eksteen, 1997). It leads to the growth and expansion of newly formed company. The rules of amalgamation are stated by the Company’s act of 1956 (Wesley, 1994). When Eastshire Fire and Rescue Services come together with the adjacent fire station for amalgamation, there are various implications.
According to the rules of amalgamation both companies lose their legal status they had before (Eksteen, 1997). They are re-established again, where they become jointly held with a new name or one of their names as agreed. The company formed is new and separate from initial companies with unique identity, name, logo, and existence. This paper reports on the financial implications of amalgamation between Eastshire Fire and Rescue Services an adjacent fire station company. Amalgamation has both pros and cons.
During the process, the companies come together with a mind of adding value to themselves in order to become more competitive or for expansion reasons. The Benefits of AmalgamationEconomies of ScaleAmalgamation brings about economies of scale. This means that there average cost decreases as the quantity increases (Wesley, 1994). The newly formed company is able to provide more services at a lower cost. Combination of the two fire stations is an advantage to the stations as they will provide the services together. Their combination will boost their capacity in the provision of the services to the society significantly.
There will be increased provision of the services and they will be efficiently being provided. This is the benefits of the economies of scale that the newly formed company enjoys (Wesley, 1994). The fire station runs under lower cost than it is with the individual company. This is because the administrative cost is cut down as a result of amalgamation. The administrative cost is usually very high for each constituent company. This saves the company for the newly formed company and it increases the profit margin (Eksteen, 1997).
The financial stability of the fire station is enhanced. Economies of scale also ensure that there is an increased production level with the fusion of the Eastshire Fire and Rescue Services and another fire station. The company that is formed after fusion is bigger and has a higher capacity. It is able to provide more services as it has grown bigger and stronger. This is a financial benefit to the company as the company can be able to generate more revenue through the sale of the increased products or services (Winchester, 2002). The constituent companies are valued whether they have liabilities and also the share of each shareholder.
During amalgamation process, the financial obligations that the company may have are transferred to the newly formed company. The newly formed company is able to coup up with the new liabilities because it enjoys the economies of scale. This is because the company has combined with another company and hence it has increased its net worth (Eksteen, 1997). . The company has a capacity to pay for the liabilities that have come along with the combining companies.