NYU Stern School of Business

Undergraduate College

ACCT-UB.0022.001 (C10.0022): ACCOUNTING FOR MERGERS, ACQUISTIONS & REL. MAT.

Spring 2013

Instructor Details

Bildersee, John

jbilders@stern.nyu.edu

See syllabus

See syllabus

 

Course Meetings

TR, 2:00pm to 3:15pm

Tisch T-UC24


Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:

 

Course Description and Learning Goals

NEW YORK UNIVERSITY

Stern School of Business

Accounting for Mergers, Acquisitions and Related Matters

 

Spring 2013

Prof. John Bildersee

 

 

jbilders@stern.nyu.edu

Tel. 212-998-0027

10-79 KMC

Class web site: Blackboard

           

 

Text: Advanced Accounting (Custom Text from 11th Edition – Hoyle, Schaefer & Doupnik)

Case materials: from annual reports and SEC filings and Trueblood Cases

Course Content: This course concentrates on mergers and acquisitions, the development of consolidated financial statements and selected reorganization issues such as IPOs and LBOs.  It also covers accounting for international operations and selected financial instruments. 

 

Some representative questions for discussion include:

 

Can the acquirer and the acquired both show gains in a partial acquisition?

What is the impact of a bidding war on shareholders, leverage and the future?

Are internal profits relevant to the analysis of the entire firm?

Can a subsidiary report a profit and the parent suffer a loss on its investment in the subsidiary (or vice versa)?

Can the parent and the minority interest have different rates of return on the same investment (including, possibly a loss for the parent and a gain for the noncontrolling interest)?

Can a company avoid consolidation even if it owns a majority of a company?  Can a company be required to consolidate even if it has a minority position in a company?

How do acquisitions impact reported cash flows?

When can a company report using a consolidated tax statement?

How are IPOs and LBOs related?

Can one company have a gain and another a loss (and a third have no gain or loss) from the same currency movements?

 

There are multiple intertwined elements to the course.  One focus is on statement development and problem solving to understand how the acquisition of a company affects financial statements and to understand how several operating units of a company can combine their individual financial statements into one consolidated statement for presentation.  The second focus is on several cases that highlight selected issues affecting firms as they combine or deal with measurement issues.  (A tentative list follows.)

 

Some selected companies and cases that may be discussed during the semester:

 

 

Coca Cola – Equity Investing

Biovail-Valeant – Who acquired who?

Food for Thought – Cost of Acquisition

SBC & Bell South – Joint venture& merger

Wachovia & Golden West – Rationale (Valuation) for a merger

Morgan Stanley & Citigroup – Valuation of Smith Barney

CenturyLink & Qwest – Merger (Negative Equity)


Alcoa & Alcan Aluminum – Hostile Bid

Walmart-Massmart Transnational partial acquisition

Henderson Inc. – Intra-entity transactions

AOLTimeWarner/Microsoft – Impairment

Facebook/Trulia – IPO

T-Mobile – IPO or Acquisition or Equity Carveout

Functional Currency – determination

Coca Cola – Reporting and Foreign Exchange

Coca Cola, GE – Hedging policies


 

Cases: Some cases consider real situations.  Other cases have been developed to reflect real world issues as Trueblood Cases by Deloitte.  Cases will NOT be part of course exams.  Handing in a short (½ - 1 page) TYPED case writeup is required in some cases.  One paragraph should describe the issues and considerations associated with the case.  A second and/or a third paragraph should include your opinions about the issues.  See the grade guide below.

 

 


Warning:The topics are detailed building on materials presented earlier in the semester.  Difficulties faced early in the semester should be dealt with promptly.

 

Are you familiar with the following topics?  These are covered with varying degrees of depth.

 

 

Topic

 

 

Mergers

100% acquisition

 

 

Partial acquisition

 

 

Disappearance of acquired firm

 

 

Acquired firm survives

 

 

Purchase method

 

 

Pooling method

 

 

Acquisition method

 

 

Fair values (assets & firm)

 

 

Valuation of intangibles

 

 

Goodwill

 

 

In process R & D

 

 

Reporting units (not segments)

 

 

Impairment testing

 

 

IFRS’ differences

 

Consolidations

Consolidation process

 

 

Investment in subsidiary

 

 

Elimination (Consolidation) entries

 

 

Noncontrolling interest

 

After acquisition

Income statement

 

 

Equity method

 

 

Cost method

 

 

Cash Flow

 

 

Selected Tax Issues

 

Intra-Entity events

Intra-Entity sales

 

Intra-Entity asset transfers

 

Impact on profits

Restructurings

Pushdown accounting

 

Leveraged buyouts

 

IPOs

 

Spinoffs & Splitoffs

 

Fresh starts

 

Segment reporting

Foreign currency reporting

Exchange rates

 

Comprehensive income

 

Conversions -translation

 

Conversions-remeasurement

 

Consolidation of foreign operations

 

Comprehensive income

Foreign currency events

Spot activity

 

Hedging

 

Fair Value hedges

 

Cash flow hedges

 

Firm commitments

 

Forecasted events

 

Hedge effectiveness

 

Options

 

 

 

(You should be familiar with accounting for available for sale and trading securities when we speak of foreign operations.  Materials will be on Blackboard.)

 

Attendance:Attendance, completion of the cases and a review of the suggested exercises are important.  You should attend every class to assure a good understanding of the materials.

 

Exams: There are two midterms and a final.  All exams are open book and open notes.  There are no make-up exams.  If you cannot take an exam at the scheduled time you are expected to take it early.  The exams will be given on the stated dates.  The topics may change if the course falls behind schedule.

 

Quizzes: There will be several 15 minute quizzes.  Quizzes are open book and open notes.  Quizzes cannot be rescheduled.  There are no make-up quizzes.  Quizzes are scheduled for the first class following a given chapter and will focus on that chapter.  The dates of the quizzes may change if our experience deviates from this schedule.  The quizzes may be used to reduce the impact of your poorest exam.


 

Suggested homework:These assignments offer a review of the primary topics in each chapter and may help you prepare for quizzes and exams. Do not spend too much time on any question.  Instead, try to work the exercise in your own way and, if you are stuck, try to understand the answer that is on Blackboard and/or ask related questions in class. Homework suggestions are listed on the first date of the following chapter to assure some classroom discussion prior to doing the exercises and to aid in preparation for any quiz on that chapter.

Classroom performance:You are expected to be able to contribute to discussions about the exercises as well as other classroom discussions.  Read the text and review the classroom exercises before class.   Positive contributions include questions and well-intended responses irrespective of their accuracy and are worth extra credit.

 

Support materials:Visit Blackboard early and often.  It has announcements, class notes, slide shows, spreadsheets, sample exams and miscellaneous items.  Many of the relevant materials will be provided as handouts.

You are expected to follow the graduate honor code and the undergraduate code of conduct throughout the semester.  We follow Stern’s default policies for anything not covered here.

Tentative Grading:

 

Exam 1

24 points

Exam 2

24 points

Exam 3

24 points

Quizzes*

10 points

Classroom attendance

 6 points

Cases - (6)

12 points

Classroom participation

Extra credit

 

*Quizzes will be worth 22 points instead of 10 points and replace 12 points of your poorest exam if the quiz average exceeds the score on your poorest exam. An alternate weighting will be used if an exam or if more than one quiz is missed.

 

 


Preliminary Schedule of Topics

Readings

Classroom Discussion

Extra Exercises

Introduction

 

GE – Financial Statements

 

Accounting for Minority Investments – Passive Investments, Equity Method

Ch 1

(1-6 thru 1-9)

 

Consolidations on Acquisition – Acquisition Method – Balance Sheet

Ch 2

 

(2-9,2-10) Biovail-Valeant – Who acquired who?

(1-14, 1-19),

Consolidations on Acquisition

Ch 2

(2-26,2-33)

 

Consolidations –/ Valuation Issues & Cases

Case Materials

Chp 2 Cases (Pick 2 of 3), Morgan Stanley, Wachovia, CenturyLink

(2-11,2-12,2-17,2-19))

Consolidations – After Date of Acquisition – Income Statement (including Cost and Equity Methods)

Ch 3

(3-4,3-7)

(2-16,,2-23), Quiz (Chp 2)

Consolidations – After Date of Acquisition – Impairments, Cash Flows

Ch 3, Ch 6 (266-270)

(3-11 thru 3-13), (6-6, 6-7), AOLTimeWarner, Microsoft -Impairment

 

Consolidations – After Date of Acquisition – Taxes, IFRS

Ch 7 (315 – 325)

(7-11, 7-12), Slides

(3-17,3-18,3-21) 

Consolidations – After Date of Acquisition – Partial Acquisitions /Review

Ch 4

(4-2,4-4,4-12 thru 4-14)

 

Exam 1 (Chaps 1 -3)

 

 

 

Consolidations – After Date of Acquisition – Partial Acquisitions

Ch 4

(4-15 thru 4-19)

 

Consolidations – After Date of Acquisition – Partial Acquisitions, VIEs

Ch 4 , Ch 6 (247-256)

(4-26), Chp 4 Case Walmart-Massmart –

Transnational partial acquisition

Consolidations – IPOs, LBOs

Notes

Case T-Mobile, Facebook

IPO or Acquisition

Consolidations – Intra-Entity Transactions – Land

Ch 5 (pp 199 – 200, 220- – 222)

(5-2, 5-5, 5-10 thru 15)

(4-22,4-27), Quiz (Chp 4) (5-7, 5-20ab)

Consolidations – Intra-Entity Transactions – Sales

Ch 5 (pp 199 - 220)

(5-23, 5-24)

(5-20c)

Consolidations – Special Topics (Alternate Restructurings – Spinoffs, Fresh Starts)

 

Chp 5 Case Henderson Inc –.

Intra-entity transactions

Foreign Currency – Introduction/Review

Ch 10

(10-4, 10-5)

 

Exam 2 (Chps 4-6)

 

 

 

Foreign Currency Conversions– (Current Method)

Ch 10

(10-6 thru 10-9)

 

Foreign Currency Conversions – (Temporal Method)

Ch 10

(10-10-10-11)

 

Foreign Currency – Consolidations

Ch 10

Chp 10, (10-35) Case Coca Cola

Foreign Exchange

Foreign Currency – Transactions

Ch 9, Notes

(9-1, 9-4)

(10-15,10-28), Quiz (Chp 10)

Foreign Currency – Forwards, Hedges

Ch 9, Notes

(9-9, 9-11, 9-12) Coca Cola, GE Hedging policies

 

Foreign Currency – Commitments, Forecasted Transactions/Review

Ch 9, Notes

(9-31, 9-32)

(9-11 thru 9-13, 9-29)

Exam 3 (Chps 9 & 10)

 

 

 

Homework related notes:

Several problems and questions include parts about three different accounting methods associated with investments (prior to consolidation) – the full or complete equity method, the incomplete or partial equity method and the cost method. The equity methods are typically identical for subsidiary income and dividend flows.  The incomplete or partial equity method and the cost method are typically identical when the focus is on intra-entity transactions.

Additional comments:
Investment Accounting

*Similar to accounting for foreign exchange

There were three acceptable consolidation methods. Pooling has been disallowed for new acquisitions since 2001  The purchase method has been disallowed for new acquisitions since December 2008.  These will be outlined briefly.  The acquisition method is the only acceptable method for new acquisitions today. However, consolidated statements today include elements of all three methods with the no longer allowed methods slowly disappearing from the financial statements as the associated assets and liabilities age.

 

 

Summary of Consolidation Methods

 

       Acceptable

Acquisition Method

   Not Acceptable

      after 2008

Purchase Method

Not Acceptable

after 2001

Pooling

Values

Fair Value

Mix

Book Value

Type of financial consideration

Any

Any

Stock primarily

Amount of financial consideration

Fair value

Adjusted fair value

Book value

Valuation adjustments on 100% acquisition

100% adjustment

100% adjustment

None

Valuation adjustments on partial (less than 100%) acquisition

100% adjustment

Acquired portion only

None

Assets discovered

New intangibles

New intangibles

None

 

For parent and

 

 

Possible Presence of Goodwill

Noncontrolling interest

Parent only

None

 

Include only events

Include only events

Treated as having

Consolidation of the subsidiary

after the acquisition

after the acquisition

been together forever

 

Business in Foreign Currencies

Conversions to Dollars for Reporting

Transactions

Conversions before Consolidation

Consolidation In dollars

Spot Market Risk

Hedging Forward Markets Neutralizes Risk

Translation

Remeasurement

Major Operations

Minor Operations

Net Assets

Net Monetary Assets

 

Commitments

Comprehensive  Income

Income

 

Forecasted Events

 

Cases must be typed.  Written material will not be accepted or reviewed.  The amount of credit will be guided by this summary.  Be concise; assume you are summarizing the relevant issues for management.  Use at least 1½ line spacing, normal page borders and size 11 font.  Use one paragraph to summarize the underlying issues and one paragraph to describe your opinion.

 

Dimension

Poor (√-)

Average (√)

Excellent (√+)

Statement of the Issues and driving Forces

Partial recognition of the factors

Identification of the factors

Thorough identification of the factors and their impacts

Opinion Based on the Above

Failure to link factors to your opinion

Partial integration of the identified factors into your opinion

Full integration of the factors into your opinion

 

Course Pre-Requisites

See syllabus

 

Course Outline

See syllabus

 

Required Course Materials

See syllabus

 

Assessment Components

See syllabus

 

Group Projects

Guidelines for Group Projects

Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.

Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole:   its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.

It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.

You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.

 

Grading

See syllabus

 

Re-Grading

The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.

 

Professional Responsibilities For This Course

Attendance

 

Participation

In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:

 

Assignments

 

Classroom Norms

 

Stern Policies

see syllabus

 

Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.

 

Recording of Classes

Your class may be recorded for educational purposes

 

Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.

 

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