Investors who benefited from the £25bn takeover fever that gripped the FTSE
in October have been warned that the flurry of merger and acquisition activity
poses serious accounting risks.
In a special research report, entitled M&A Resurgence: Accounting and
Financial Reporting Risks, a team of analysts at credit rating agency Fitch said
the combination of changing accounting standards for M&As, and the
possibility of errors creeping into the takeover process, posed serious dangers
Analysts William Mann, Raja Akram, Bridget Gandy and Roger Merrit said in the
report: ‘Fitch has observed certain cases where financial reporting mistakes,
poor application of accounting standards or aggressive accounting have made it
difficult for investors to analyse transactions.
‘In some cases this led to restate-ments, poor results from operations and
downgrades of credit ratings.’
The report highlighted new rules for takeovers introduced by the IASB and
FASB as an area of risk. Fitch said that preparers of accounts unfamiliar with
the new standards could ‘improperly execute the new standards’ and make errors
that auditors could miss as the new rules bedded down.
The fact that the standard setters had introduced fair value as opposed to
historical cost accounting into the new rules would place extra pressure on
‘Execution of these changes may create additional accounting or restatement
risk, especially now that standard setters have moved towards fair value and
heavy reliance upon management’s judgement and estimates in determining fair
value,’ said Fitch.
Changes to the standards would affect European-based companies, especially P
&O, O2, Telefonica and Pilkington Glass, all of which are involved in
takeover deals. The Fitch analysts said this was ‘a particular area of concern
in Europe’ as many companies were ‘adopting a new set of accounting standards
upon transition to international financial reporting standards’.
The report also pointed out incomplete due diligence and the complex nature
of tax accounting in M&A deals, particularly in cross-border transactions,
as other areas that investors should focus on when making an investment
PartyGaming raises the stakes with purchase of Multipoker.com
as GUS plans to sell BurberryPartyGaming has spent $14.5m (£8.3m) to acquire
Multipoker.com, Scandinavia’s largest onlinepoker site. The move confirms
PartyGaming’s aim, expressed by finance director Martin Weigold, of
consolidating the sector. PartyGaming’s share price, which since September has
plunged from above 150p to below 90p after reviewed earnings expectations,
strengthened 1.91% to 93.5pon the news.
Man Group’s brokerage unit has completed a $323m (£186m)
cash deal for the regulated futures brokerage arm of bankrupt brokerage Refco
after outbidding four rivals. Refco fell into bankruptcy after former chief
executive, Phillip Bennett, allegedly used a hedge fund to conceal an irregular
$430m (£243m) debt.
Sage, the accountancy software developer, has made one of
its biggest acquisitions in several years, with the purchase of French
management software provider Adonix. Paul Walker, Sage chief executive, said
that the purchase would enable Sage to offer a stronger product suite to
existing customers in the mid-market. Adonix is a vendor of a suite of advanced
business management solutions for mid-market businesses, including
industry-specific software for real estate and manufacturing with approximately
GUS, the owner of Argos and Burberry, will reveal further
details of its intention to sell off Burberry when it releases interim results
today. Speaking at last week’s CIMA annual conference, GUS finance director
David Tyler said the group aimed to have a buyer for Burberry lined up before
the end of the year.
Aerospace and defence group BAE Systems is believed to be on
the brink of pumping £500m into its pension scheme in a deal with employees to
plug its £2.8bn pension deficit. The payment will be a mix of assets and cash.
The FD of bakery group Greggs, Michael Simpson, along
with his wife, has sold 50,200 shares in the group over the last week to take
home a total windfall of £2.31m. Simpson now holds 43,204 shares in Greggs,
which amounts to a 0.35% share of the company. Greggs’ share price performed
well this year, climbing from 3,658p per share to over 4,700p, but its latest
trading statement warned that trading conditions had become tougher than
The UK’s appetite for financial skills helped headhunter Whitehead
Mann offset the underperformance of its businesses in Europe and Asia.
Group chairman Sir Colin Southgate said that searches for financial executives
had been lucrative. ‘We have seen increased demand from clients across all
sectors in the UK, especially in financial services where we are benefiting from
increased recruitment by City institutions,’ he said.
Whitehead Mann reported group turnover of £20.3m for the six months to 30
September 2005, down from £26.9m. The group has closed North American operations
and its interim management business, and reduced the size ofits coaching
business and UK recruitment teams.
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