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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 73.87-0.1%Jan 9 9:30 AM EST
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To: Dave who wrote (58689)3/27/2002 12:52:41 PM
From: BWAC  Read Replies (1) of 77400
 
Hey Dave,

<writeoff of goodwill implies that management overpaid for their acquisitions>

I respectfully disagree. IF they used cash you have an excellent point.

If they used stock, which might have been equally overvalued, then your point is wrong. Look at the business seller side. Would you take a "fair" market value for your company if the currency was overvalued stock? Of course not. You'd want some premium right? To offset the overvaluation and the risk that it fell before you converted it to cash? Hence the buyer just created a heap of Goodwill to be put on the balance sheet.

Another way of viewing it. AOL example. They used overvalued $80 stock to create all that Goodwill. The stock is now $23 which we could assume is much closer fo fair value. Whats being written off is the excess valuation (and risk to Time Warner) that was priced into the AOL stock currency transaction.

So how does this imply overpaying?

A further example of this in process at a more sane moment in market valuation. CIEN and ONIS. CIEN is paying about 10% over book value for ONIS. In stock. There won't be any material Goodwill created. Could it be that ONIS thinks there is little risk in CIEN stock at $8? And that its fair value for the currency used?
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