M&A

Question 1

2 Cornerstones of group Accounting

Answer 1

1. Only transaction with outside parties count

2. Acquisitions of shares in subsidiaries accounted for as if individual assets and liabilities had been acquired

Question 2

Financing liabilities = target equity

100% shares

Answer 2

Combined:
= Add Assets
= Keep acquirers Equity
=Add both liabilities plus price

Profit
= add two
=subtract interest expense on new debt

Question 3

Financing Cash = Target Equity

100% shares

Answer 3

Combined:
= Add Assets subtract cash
= Keep acquirer’s Equity
=Add both liabilities

Profit
= add two
=subtract lost interest income on new debt

Question 4

Financing Equity = target equity

100% shares

Answer 4

Combined:
= Add Assets
= Keep acquirer’s Equity + new equity
=Add both liabilities

Profit
= add two
no interest expense or income

Question 5

Price > target Equity

Financing liabilities

Answer 5

Combined:
= Add Assets subtract goodwill
= Keep acquirer’s Equity
=Add both liabilities + financing

Profit
= add two
=subtract int exp
= + synergy savings

Question 6

3 ways to measure outcomes of MA

Answer 6

1. Development of financial ratios compared to
   control group growing organically
   2) Development of share price
   3) Ask managers in the acquiring firm

Question 7

Goodwill testing procedure

Answer 7

1. identify relevant cash-generating unit within operating segments
2. compare carrying amount to recoverable amount
   - The higher the value in use VIU and fair value, less cost to sell
3. if Carrying amount > recoverable amount, then reduce CA starting with goodwill

Question 8

Goodwill Calc

Answer 8

Price for %
- Net Assets at fair value (Assets - Liabilities)
= Goodwill

Question 9

Minority and noncontrolling interest

Answer 9

% minority-owned * (Acquired assets - liabilities)
Acquired assets = Assets + goodwill
*only at goodwill for full goodwill calc

Question 10

Minority acquisition

financed by liabilies

Answer 10

Don’t combine book values
Based on financing, things will change
If debt, Liabilities + price

Question 11

Direct vs indirect mergers

Answer 11

In a direct merger, the target company and the buying company directly merge with each other. In an indirect merger, the target company will merge with a subsidiary company of the buyer.

Question 12

Carrying vs recoverable amount

Answer 12

Carrying Amount = Assets - Liabilities
Recoverable Amount: =MAX(cash flow / discount rate, sale offers)
If the carrying amount exceeds the recoverable amount you need to make impairments if not then you do not need to change the balance sheet

Question 13

Share exchange

Answer 13

Target Share Price / Acquirer Share Price = amount of acquirer shares offered