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19 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Merger vs Consolidation
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merger : 1 company acquired by another
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consolidation : 2 or more seperate companies join to form 1
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Backward Vertical Integration
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moved down the production marketing cycle
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acquires supplier of products or services
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Forward Vertical Integration
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moves up the production marketing cycle
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acquires company that uses its products
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Horizontal Merger
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combines companies that offer similar products
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usually a competitor
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Product Extension Merger
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buys company to extend product line in same area
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Market Extension Merger
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increases geographic market coverage of the same products
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Conglomerate Merger
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acquires firm in unrelated line of business
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Tax Advantages of combinations
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tax free reorganization: shares exchanged
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pay taxes when sell shares in new business combination
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Other tax advantages
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carry back losses to 2 years (5 years 2008 & 2009) of acquired companies
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carry forward losses of acquired companies for 20 years to offset future taxable income
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Defense moves of takeovers
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Greenmail: buying stock back at premium
White Knight: New company to keep current management Poison Pill: stockholders have right to purchase stock at reduced prices |
Selling the Crown Jewels: selling vital assets to make company less attractive
Leveraged Buyouts: purchase controlling interest in the company |
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Acquisition Method
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1 Identify the Acquirer
2 Determine the Acquisition date |
3 Measure the fair value of the acquiree
4 Record the acquiree's assets and liabilities that are assumed |
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Recording Changes in Value During Measurement Period
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Measurement period ends when improved information is available or obvious no better information is available
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Period cannot exceed one year from acquisition.
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Goodwill
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Price paid is greater than net assets
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Gain on Purchase
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Price paid is less than net assets
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Goodwill Impairment Testing
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1st) Fair value of reporting unit is compared to book value to get impairment loss calculation. If fair value is lower than book value goodwill is impaired
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2nd) fair value is compared to book value less goodwill
ie fair value $320,000 book value 345,000 fair value is greater than book value, goodwill is impaired |
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Goodwill Impairment Testing example
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Estimated fair value $320,000
Less fair value 285,000 = implied goodwill 35,000 existing goodwill 63,000 est impairment loss 28,000 |
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Special method for smaller companies
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acquisition expense costs are capitalized , goodwill is amortized
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Deferred tax liability
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Income is lower for IRS purposes than on books
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usually depreciation difference
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Deferred tax asset
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Income is greater for IRS purposes than on books
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like a prepaid tax
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