TaxPersonal Tax#350m stakes in BAe merger

#350m stakes in BAe merger

British Aerospace may be forced to drop attempts to account for its takeover of GEC Marconi as if it were a merger.

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.

Related Articles

HMRC urged to clarify impact of income allowances on Self-Assessments

Personal Tax HMRC urged to clarify impact of income allowances on Self-Assessments

1w Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

2w Emma Rawson, ATT Technical Officer
Wealthy individuals could circumvent top tax rate rises

Personal Tax Wealthy individuals could circumvent top tax rate rises

2m Alia Shoaib, Reporter
HMRC tax evasion assistance requests double in five years

Corporate Tax HMRC tax evasion assistance requests double in five years

4m Emma Smith, Managing Editor
Rangers tax case to have ‘dramatic’ consequences for football and business

Legal Rangers tax case to have ‘dramatic’ consequences for football and business

4m Emma Smith, Managing Editor
Italy grants first successful non-dom status application to former UK non-dom

Personal Tax Italy grants first successful non-dom status application to former UK non-dom

3m Emma Smith, Managing Editor
Industry reaction: Taylor Review does not go far enough in addressing tax issues

Legal Industry reaction: Taylor Review does not go far enough in addressing tax issues

3m Alia Shoaib, Reporter
Does the Taylor Review sufficiently address the gig economy?

Corporate Tax Does the Taylor Review sufficiently address the gig economy?

3m Alia Shoaib, Reporter