epoch1970 wrote: > Could the continuation as UER be a simple matter of sustaining the fair > value of the asset ? > I'm not exactly clear as to when "fair valuation" applies.
When one acquires a company they usually pay more than "book value", this being the value of tangible assets like cash, inventory, buildings. The premium that one pays over book value is called "goodwill", this is the buyer's estimation of what they percieve to be the extra value of, (or what they are prepared to pay for), all the intangible assets such as key personnel, brand names, trade marks, patents and customer loyalty. Book value is like hardware (any accountant can add it up), whereas goodwill is more like vaporware (beauty is in the eye of the beholder). In the deal, the acquirer effectively reduces the amount of cash (retained earnings) on its balance sheet by the amount of money it paid to the prior owner, but it compensates this by adding back both the book value and goodwill of the acquired company; these three (cash-, book value+, goodwill+) all cancel out, but they appear under different headings in the balance sheet. The difficulty is that the goodwill amount is really a virtual number not reflecting any hard assets, and investors, lenders and regulators tend to penalize companies having too high a proportion of goodwill on their books. Therefore companies are obliged to depreciate it (write it off) over a period of time. But this depreciation has a negative impact on real profits, so companies do the depreciation but try to stretch out the process as long as (legally) possible. Now the crux of the matter is, if you buy a company and pay a high amount of goodwill, and then sell it again later with a low amount of goodwill, then you are obliged to immediately write off the missing goodwill from your books. This cuts immediately your profit in that fiscal year by the same amount. And no investor likes that. I don't know if Logitech bought Slim Devices with an over- optimistically high amount of goodwill (but I suppose so). In that case, rather than re-selling their acquistion and being forced potentially to take an immediate hard profit hit, the management may prefer not to re-sell the acquistion, and thus not to take a hard profit hit. That way you avoid upsetting your investors. Although, probably 20% of the investors are canny enough to see that the two options (re-sell and take the hit, or don't re-sell and put off the hit) are essentially the same. But the difference is that in one case you upset 100% of the investors, whereas in the other one you only upset the 20% who are canny... ------------------------------------------------------------------------ AndrewFG's Profile: http://forums.slimdevices.com/member.php?userid=15838 View this thread: http://forums.slimdevices.com/showthread.php?t=96466 _______________________________________________ discuss mailing list [email protected] http://lists.slimdevices.com/mailman/listinfo/discuss
