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Unformatted text preview: iquidated 1-25 BUSINESS COMBINATIONS Friendly Unfriendly (hostile takeover) Agreement in the terms of the combination NO agreement in the terms of the combination Managements of companies involved recommend approval by the stockholders Management of one of the companies → tender offer directly to the shareholders of the other company 1-26 Methods of Effecting Business Combinations Acquisition of assets Acquisition of stock Statutory Merger Statutory Consolidation For one company to gain control over another → a a majority of the outstanding voting shares usually is required unless other factors lead to the acquirer gaining control Noncontrolling interest: The total of the shares of an acquired company not held by the controlling shareholder Acquisition by other means 1-27 Valuation of Business Entities Value of individual assets and liabilities Value determined by appraisal Value of potential earnings “Going­concern value” based on: A multiple of current earnings. Present value of the anticipated future net cash flows generated by the company. Valuation of consideration exchanged 1-28 Acquisition Accounting The acquirer recognizes all assets acquired and liabilities assumed in a business combination and measures them at their acquisition­date fair values If less than 100% of the acquiree is acquired → the noncontrolling interest also is measured at its acquisition­date fair value Fair value measurement The FASB decided in FASB 141R to focus directly on the value of the consideration given 1-29 Acquisition Accounting Points to consider: Costs of bringing about and consummating a combination → charged to expense as incurred Costs of issuing equity securities used to acquire the acquiree → reduction in the paid­in capital associated with the securities 1-30 Acquisition Accounting: Goodwill 1. Fair Value of the consideration given by the acquirer + 2. Fair Value of any interest in the acquiree already held by the acquirer + Fair Value of the acquiree’s net identifiable assets 3. Fair Value of the non-controlling interest in...
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