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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (36179)	12/7/2000 7:36:33 PM
From: BDR	Read Replies (1) \| Respond to of 54805

A few months back there was a discussion here about Cisco's accounting for acquisitions and the effect that different methods would have on earnings. The issue was "goodwill" which includes intangible assets, a concept that has also been discussed here. FASB was talking about eliminating the pooling of interests method that was favorable to acquisitive companies like Cisco but has changed direction. FASB backs down on pooling globalarchive.ft.com FT.com site; Dec 6, 2000 BY ADRIAN MICHAELS AND PETER THAL LARSEN IN NEW YORK US regulators on Wednesday announced changed plans for merger and acquisition accounting which are likely to end Wall Street fears that the new rules could be a deterrent to deals. The Financial Accounting Standards Board said it was still discussing scrapping the highly-popular pooling of interests accounting method but it hoped the replacement met Wall Street concerns. Pooling of interests adds together the book value of merging companies for future accounting purposes. It is popular because it takes no account of goodwill - the amount one company pays to acquire another above the book value of its assets. Goodwill includes intangible benefits of acquiring a company, such as its reputation. After pooling is axed, all mergers were to have used purchase accounting, which makes companies write off goodwill over 20 years, and can be a large drag on quarterly earnings. Instead, the FASB has opted for a plan that puts goodwill on the balance sheet as an asset. Its value would be "means-tested" and restated in accounts if certain events, such as sector upheaval, take place. The FASB was lobbied heavily to scrap the write-down of goodwill - called amortisation - by the largest Wall Street groups, including Morgan Stanley Dean Witter and Goldman Sachs. Influential companies such as Cisco Systems in the information technology sector, which believed it had much to lose by the scrapping of pooling of interests, also formed their own lobby group. Goodwill is often a very large factor in the agreed price of a high-tech deal. Trevor Harris, a managing director at Morgan Stanley Dean Witter, said he was very pleased with the proposal and that it made good sense for investors. "It will ensure that the deals that make the most strategic sense will get done," he said. Ed Jenkins, the chairman of FASB, stressed that the plan was only tentative. Further details would be discussed at future meetings of the board, he said. If agreed, the new plans could not take effect earlier than the second quarter of next year. "Determining the appropriate accounting treatment for purchased goodwill has been the most challenging issue in our project to improve the transparency of accounting for business combinations," Mr Jenkins said. "Today's tentative decision...is directly responsive to the feedback we received from many companies, auditors, investors and others." An agreement on accounting for goodwill did not mean yet that pooling accounting was dead, Mr Jenkins said. Although goodwill was the largest issue that had to be resolved if pooling was to be scrapped, other, smaller, considerations would not be taken up until January. FASB said it would not make any final decisions until it had addressed "all of the substantive issues raised by constituents". Mr Harris said he believed that a few deals had been pushed through this year in anticipation of the accounting changes. "Some people have been looking to get in before pooling goes away," he said. Copyright © Financial Times group And: THE AMERICAS: Fresh rules planned for M&A globalarchive.ft.com Financial Times; Dec 7, 2000 By ADRIAN MICHAELS and PETER THAL LARSEN US regulators yesterday announced changed plans for merger and acquisition accounting which are likely to end Wall Street fears that the new rules could be a deterrent to deals.