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Technology Stocks : Vantive Corporation
VNTV 77.60+2.6%Jan 12 4:00 PM EST
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To: investorgal who wrote (1633)3/5/1998 6:09:00 PM
From: Scott H. Roberts  Read Replies (1) of 3033
 
"As for the structure of the deal, acquisitions based completely on stock swaps are
risky at best and have never been as clean as acquisitions based on some portion of
cash. The fact that the CFO in both instances is the same, concerns me. In terms of the
buyout, it's a no-lose for Siebel."

I have heard many comments on the VNTV and SEBL threads about the concern about deal structure between SEBL and SCOP and had a few thoughts on the subject. The deal structure used in the deal was the pooling of interest accounting by which the stock of one company is exchanged for the stock of another company. Pooling accounting restates the combined operations of both businesses as if the two companies were always one company. It is true that the buyer (in this case Siebel)has an advantage in using, what everyone probably admits, is a richly valued stock. Certainly there is risk to Scopus shareholders that Siebel's stock tanks in 6 months and their 460MM deal turns into a 250MM deal.

Having said that, the pooling of interest accounting is very common and often makes the most sense. When using purchase accounting, the buyer is forced to expense the excess of the purchase over the book value, this is called goodwill (although there is nothing good about it).

The onus is put on the seller in deals where the buyer's stock is a high flyer to justify a higher price. Furthermore, if you believe in the stock of the buyer, the seller can benefit from future increases in the stock prices without suffering the capital gains hit that a purchase creates.
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