AndrewFG wrote: > 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 acquisition and being forced potentially to > take an immediate hard profit hit, the management may prefer not to > re-sell the acquisition, 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...
Yes ,but is the squeezebox department noticeable at all when compared to the rest of Logitech, would any investor or current owner notice at all or actually even know of the existence ofthis product line :) the loss is probably more of internal prestige for the ones that did this acquisition or the ones that currently run's it ;) ------------------------------------------------------------------------ Mnyb's Profile: http://forums.slimdevices.com/member.php?userid=4143 View this thread: http://forums.slimdevices.com/showthread.php?t=96466 _______________________________________________ discuss mailing list [email protected] http://lists.slimdevices.com/mailman/listinfo/discuss
