Frantic attempts by British Aerospace to account for its #7.9bn acquisition of the defence arm of GEC as a merger are expected to fail, hitting the company’s profits by #350m as a result.
Accountants and analysts said this week they did not expect the company to be able to adopt merger accounting principles in booking the deal, which values GEC Marconi’s goodwill at about #7.6bn.
Merger accounting rules would allow the company to account for the deal as a pooling of interest. But, if BAe was forced to account for it as an acquisition, it would have to put the goodwill on the balance sheet and amortise it.
That amortisation would hit pre-tax profits to the tune of #350m a year, according to analysts.
A source close to the Accounting Standards Board said: ‘FRS6 sets out a series of tests for whether or not you should account for such a deal as a merger or acquisition. The central point is whether you can identify an acquirer. It would seem to apply in this case.’
A corporate finance specialist at a Big Five firm said: ‘Like all these things, they will push for merger accounting if at all possible.’
But an analyst at a City bank warned: ‘They would love to get away with merger accounting but I don’t think that anybody really expects that to be the case.’
British Aerospace finance director George Rose, who has been in talks with auditors KPMG, has hinted that a decision could be made as early as next week.
Richard Le Tocq, head of Locate Guernsey, discusses the chancellor’s approach to high net worth individuals, and why relocation is increasingly attractive to HNWIs
The firm says that the U-turn 'does not alter the need for a fundamental review of the way we tax work' and that the current tax system is in need of reform
Legislation on the NICs changes to be brought forward in the autumn following publication of 'the full effects of the changes to Class 2 and Class 4' in the summer
Following chancellor Philip Hammond’s Spring Budget speech, we explore the key takeaways for businesses and individuals