Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Network Associates (NET) -- Ignore unavailable to you. Want to Upgrade?

To: Edwarda who wrote (4289)	3/16/1999 8:46:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 6021

Edwarda, I have lots and lots of thoughts on this issues. Like the song goes, if they asked me I could write a book .... So, at the risk of boring you: I believe that a merger must stand on its own two feet, regardless of the accounting gimmicks. Inevitably, there will be dilution because an acquiring company simply must pay more in whatever currency it uses -- stock or cash, for the acquired company than street valuation. The dilution will take place in either or both of earnings per share or growth unless there are real synergies. Real synergies should go way beyond the elimination of duplicated costs. At a minimum they should allow for cross selling, and should allow for bolstering a product line to allow sales that neither of the companies could have gotten prior to the merger. These kinds of advantages have nothing to do with how the accountants deal with them. If, as you say, a merger is wise strategically, then it needs to be wise financially as well. That means that investors need to know whether the future benefits of the acquisition are justified by the cost. The problem as I see it, is that by using the ubiquitous wig and make up of restructuring charges and purchased in process R&D we simply can't tell from earnings whether the deal makes sense because the benefits are almost always overstated by the cosmetic elimination of very real expenses. That's why I think that the sooner analysts get rid of accounting earnings as a metric the better. The problem is not in pooling of interest accounting per se. The difficulty is that the SEC allowed companies to write off a great deal of future expenses under the rubric of "one-time merger-related expenses". And if you think about it for a minute you might conclude that this subterfuge makes very little logical sense. The fiction that pooling of interests operates under is that the companies had always been combined. But the inclusion of restructuring charges flies in the face of that contention. What ought to have started out as a precautionary footnote to investors has been transmogrified by accounting sharpshooters into a way to fraudulently represent the merged company's prospects. And as to your final point: how can brokerage houses hire analysts who don't understand finance? I suppose there are some, but that is a really frightening prospect. [It would explain their obsession with DSO and back-end loading. I wonder how many of them really understand the implications of DSO?] The one advantage I see to pooling of interest mergers is that it frequently allows shareholders in the acquired company to avoid having to pay capital gains taxes. TTFN, CTC

To: Edwarda who wrote (4289)	3/17/1999 11:37:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 6021

Edwarda, one final comment (I promise!) on the subject of accounting for M&A: You noted: ... but it might stop acquisitions that are wise strategically because companies are afraid that analysts may penalize them for dilution in the near term. (And we know that all too many behave as though they have never seen a balance sheet!)? I guess that argument really makes my point. I would think that a merger that doesn't get done because of the accounting is one that shouldn't get done. After all, the accounting is supposed to be a representation of the truth. But, as we well know, it is not the truth. So my rejoinder to you is this: does old current accounting system allowing one time restructuring costs (which are after all future costs) better represent the merger, or does writing those costs off over time better represent the truth? Don't we need to look at the real strategic implications and the real costs? What do you think? TTFN, CTC