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The assets are undervalued in the example due to market conditions as at crisis all building industry is stuck , so they are already at FV. Yes , i understand that something should be balnced in the assets with Share capital , i’ve got it . But in theory could the consideration be les than shares price at par?
It’s not a stereotype)I’m from Eastern Europe)
Thank you ,Mike
But there may be unique assets (patents or researches) , not available if you create company from the scratch, isn’t it common thing for medium pharmaceutical companies that may have potentially very profitable researches but they balancing with liquidity and insolvency problems due to inability generate profits right here and right now.
Or i can imagine a realistic scenario for Eastern Europe with high level of corruption and in times of crisis , lets say building company got an approval from local government for the land in the center of the capital( what is close to mission impossible for “3rd parties” due to corruption bureaucracy) to build an apartment block, before the crisis, when the economic went down building company became just unable to acquire financing to finish project, moreover currency depreciation closed foreign money market as costs of such debt would be to high . So the company is left with huge liabilities and undervalued assets or if not undervalued than just not available for use to generate income right now.Isn’t it attractive for multinational company , to buy it on season sale-crisis , and realise the benefits in 5-7 years ?Why insolvent company don’t have assets ? isn’t they are just not enough to cover obligations , but there are assets. This topic is particularly interesting for me as it’s hot topic in the countries within economic turmoil, which is now used frequently to buy companies in trouble for the petty cash, as insolvency may mean not only that company is unable to generate incomes ,rather it may be the sign of poor management and so on.
But i guess i got an idea
Thank you
But there could be reasons behind the acquisition of the insolvent companies e.g. patents that it owns or it’s registered in the country with high entry barriers, or even the case of the bank bailouts while crisis , basically banks were going bankrupt but their shares were bought by the governments. Isn’t insolvent company company may have interesting items in the assets but they are just not enough to cover obligations, but still could be attractive taking into account that shares might be sold below par value (could they ?). And on the basis of what should be calculated such consideration ? pure share capital i guess?
I suppose par value of issued shares should be paid or even with the discount .e.g. Share capital at par 100k$ , we have paid 70k$ with the discount , the difference may be treated as gain on bargain purchase?or such situation unrealistic?
To the shareholders, thus no entries in aquired entity books unless we buy subsidiary from another company))
The last thing confuses me is how to treat acquisition of insolvent company as there are no net assets , will the consideration calculation be based solely on share capital value?
Thank You, Mike
And one more , what if acquired company has accumulated retained loss that exceeds share capital , basically company insolvent , how the consideration should be calculated e.g is there goodwill? I guess no then how to treat difference between price paid and net assets if equity has positive balance due to accumulated loss
Thank you
Hi everyone ,
Question from the same topic:
If subsidiary has in BS financial assets (lets say loans issued) in the foreign currency , should subsidiary in its separate financial statements realise FX gain/loss in P&L after translation of this fanancial assets (monetary item) at the reporting period closing rates ? or FX gain\loss will be realised when loan settled?
Thank you a lot in advance
and what annual payment you use if loan spread for 4 years ? 60 mln\4 =15 mln + interest charged 2% of 60 mln = 16200 each year , to calculate Macaulay duration ?