Definition of Consolidation: Characteristics and Resulting Effects

Meaning of Consolidation – Have Reader ever heard the term consolidation? Consolidation has several definitions depending on the field. However, in general, the notion of consolidation can be interpreted as an action or effort made to strengthen, unify and strengthen a relationship between two groups, so that the two groups have a strong union.

Then, what is the meaning of consolidation according to other fields? And what are the characteristics and effects caused by this consolidation? See the following explanation of the meaning of consolidation.

Definition of Consolidation

Consolidation can be interpreted as the merger of two or more businesses, the merger is done by establishing a new business or liquidating an old business without first liquidating.

Consolidation can also be defined as two companies that merge or dissolve, for the sake of law and instead the two companies establish a company with a new name. Although the new company, will be taken over the assets as well as the rights and obligations of the two companies that have been dissolved before.

The purpose of doing the consolidation itself, is to unite every element that has certain similarities. For example, religion, regional origin, or groups with the same purpose or mission vision.

However, this notion of consolidation is actually used in various fields, not only in the business field, for example accounting and sociology. Here are some definitions of consolidation from various fields.

  • In the field of business, consolidation can be interpreted as the merger of two or more companies that become or form a new company. Where the new company, will take over all the rights and obligations of each company that has been merged.
    Consolidation in the field of business can also be interpreted as the merger and acquisition of many small companies that become several companies with a much larger scale. Consolidation in business occurs when two or more businesses join together to form a new entity with the same hope, namely to increase market share as well as profitability and profit by combining talent, expertise and industry technology.
    The meaning of consolidation in this business is different from the practical term of merger. Because companies that consolidate can create new entities. Meanwhile, a merger in business can be interpreted as the act of one company trying to absorb another company, but the other absorbed company still exists and has not been dissolved.
  • While in the field of accounting, the meaning of consolidation is the merging of reports of all equity, assets, liabilities and operational accounts owned by a parent company and a subsidiary company in one form of financial report.
    The notion of consolidation in the field of accounting has the meaning of a financial report that provides a comprehensive picture. Especially regarding the financial position of parent companies and subsidiaries and not the position of independent companies.
    According to the context, the notion of consolidation in the field of accounting refers to the aggregation of financial statements from a group of companies as a form of consolidated financial statements. In general, information from parent companies and subsidiaries will be treated as if they come from the same entity.
  • The definition of consolidation according to the field of sociology, is a form of strengthening community membership in a social group that has several elements, such as tribal elements, religion, social status, gender and other elements.
  • In the field of technical analysis and trading, consolidation is a term that refers to the price of securities that have consolidation in a corridor and in general, consolidation can be interpreted as a form of market uncertainty.
    In the field, the term consolidation is generally used to describe the movement of the stock price, on a fairly well-defined trading level pattern. Consolidation is also considered a period of uncertainty, which will end when the price of the asset moves up or down in the trading pattern.
  • In the field of technology, consolidation refers to data storage or server resources that are shared among many users and accessed by many applications.
    In technology science, the notion of consolidation is to have the purpose of making the use of computer resources more efficient and preventing a server and storage device from being underutilized to the point of consuming too much space.
    The definition of consolidation in the field of technology is divided into two, namely server consolidation and storage consolidation. The definition of server consolidation involves the reduction of the number of servers and server locations in an organization.
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So, from the definition of consolidation above, consolidation can be defined as an act of combining two or more bodies, companies, groups or banks into one, thus forming a new company, group or body.

Meaning of Consolidation According to the Members

In addition to the definition of consolidation according to various fields and in general, consolidation is also defined by several experts. Here is the definition of consolidation according to experts.

Merriam Webster’s Dictionary

According to this one dictionary, the meaning of consolidation is the process of unification, whether it is unification in quality or condition. Whereas, in general, the meaning of consolidation is the unification of two or more corporations through a dissolution and the formation of a new corporation.

Features of Consolidation

In order to better understand, regarding consolidation, Reader needs to know the characteristics of consolidation. Here are the features of consolidation.

  • There is a merger or merger of two or more companies, forming a new company.
  • Every old company that has been dissolved, will be dissolved without going through a liquidation process.
  • The new company that emerges from the amalgamation must have the status of a new legal entity.
  • The plan of consolidation as well as the concept of the deed of consolidation must be approved by the GMS of each company.
  • All assets and liabilities of the merged company will automatically transfer to the new company formed.
  • The concept of the deed of consolidation, which has been approved by the RUPS, will then be written on the deed of consolidation that has been drawn up in front of a notary using Indonesian.
  • The new company from the result of consolidation, will have the status of a legal entity with the date of publication in accordance with the decision of the Ministry of Public Health regarding companies that merge without going through the liquidation process.

Effects of Consolidation and Company Reasons for Doing It

When the company decides to consolidate, there will be effects resulting from the consolidation. In general, the effect of consolidation carried out by the company can bring positive effects, namely the quality of the company increases and the company grows more.

When knowing the effect of consolidation, of course the main reason for the company to consolidate is to benefit the company. However, there are several other reasons when companies consolidate. Here is an example from a bank that does consolidation.

  • There are health problems, when a bank has been declared unhealthy by the Central Bank, then the bank will usually merge or consolidate with other banks. So the best option for the bank, of course, is to merge with another bank that is still healthy.
  • There is a capitalization problem. If the capital owned by a bank or company is felt to be too small, so that it is difficult for the company or bank to expand its business, then the bank or company can merge with another bank. The purpose is for the bank or company that joins to have a much larger capital. So, it will be easier for the company or bank to expand its business.
  • There is a management problem. Some companies or banks may have less professional management, so that the bank or company suffers continuous losses and is difficult to grow. This will encourage banks or companies to consolidate with other banks or companies that have more professional management.
  • Technology and administration. Banks and companies that still use simple technology, often experience various problems, especially due to the development of the times. Therefore, to obtain more sophisticated technology, of course the capital required is not small. For this reason, banks and companies will choose to consolidate with parties that have advanced technology.
  • The desire to dominate the market. This fifth reason, in general, is not clearly announced to outside parties, but is only known to certain parties. By consolidating, the bank or company will have an increasing number of branches and customers and make the company or bank dominate the market.
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How Companies Consolidate

There are several ways that must be taken by companies that want to consolidate.

  • The directors of companies that are going to merge themselves, must prepare a proposal for a consolidation plan, the proposal for the plan, must be approved by the commissioners in each company.
  • The proposed consolidation plan will then be used as material to prepare the consolidation plan. The plan, compiled together by the directors of the company that will carry out the merger.
  • A summary of the consolidation plan must be announced by the board of directors in two daily newspapers and will be announced to the employees in writing and at the latest two weeks before the convening of the GMS.
  • The consolidation plan as well as the concept of the consolidation deed, must be approved by the RUPS of each of the merging companies. The concept of the consolidation deed that has been approved, will then be written on the consolidation deed that has been made in front of a notary using Indonesian. If it has been certified by a notary, then the consolidation deed can be used as a basis for creating a new PT establishment deed.
  • The directors of the company must submit an application for confirmation of the deed of establishment of the new company to the Minister of Public Health and no later than two weeks from the date of the GMS decision.
  • Menkumham will then give a confirmation sign no later than 60 days after the application is received. The company that consolidates will then be considered liquidated, starting from the date the deed of establishment of the new PT from the result of the consolidation is confirmed by the Ministry of Justice.
  • Once it has been confirmed by the Minister of Justice, the deed of establishment of the new PT from the amalgamation must be entered in the company register and announced in the supplement of the Republic of Indonesia.

Then, when the company that has done the consolidation is involved in a dispute, then there are several steps that must be taken to resolve the dispute.

The first step is to make a solution by filing for mediation first. Then if mediation fails, then an agreement is made to find a solution through consolidation. If this effort is unsuccessful, it will be referred to arbitration.

Examples of Consolidation in Various Fields

As has been explained in the sense of consolidation, that consolidation can occur in various fields. Be it in the field of accounting, business, technology or even mass action. To make it clearer, here are some examples of consolidation in various fields.

1. Business consolidation

There are several companies that consolidate, some of the companies that are the result of consolidation are Bank Mandiri that consolidates with Bank Bumi Daya (BBD), Bank Dagang Negara (BDN), Bank Export Import Indonesia or Bank Exim and Bank Pembangunan Indonesia (Bapindo).

In addition to banks, there is also a SmartFren company which is a company that is the result of consolidation from PT. Mobile 8 Telecom Tbk (Mobile 8) and PT. Smart Telecom (Smart). Bakrie Telecom and PT. Sampoerna Telekomunikasi Indonesia (STI) also consolidated with several companies.

2. Consolidation of mass action

The masses are consolidating, with the aim of combining their strengths to achieve a common goal. An example of the consolidation of mass action is the demonstration that took place on 23 to 24 September 2019, namely the Corrupted Reformation demo.

That is an explanation of the meaning of consolidation accompanied by examples, characteristics, and effects of consolidation carried out by companies or banks.