Johnson And Questcor Pharmaceuticals: Business Combinations
Running Head: BUSINESS COMBINATIONS
Business Combinations
Introduction
For this paper, selects Johnson & Johnson (J&J) and Questcor Pharmaceuticals the US companies to acquisition. This paper explains the best combination method of Johnson & Johnson for expanding the corporation through acquiring Questcor Pharmaceuticals. Johnson & Johnson pay $15 million in goodwill of Questcor Pharmaceuticals during acquisition. Moreover, it explains the reason behind the selection of combination method and the way to grow the business. It also analyzes the requirement of accounting for the combination method of business and also prepares consolidated financial statements for the date of acquisition. In addition, it also determines …show more content…
the way of goodwill was impaired and the impacts of impaired goodwill on the financial situation of Johnson & Johnson.
Business Combination Method
Business combination means a transaction through which an acquirer obtains control of other businesses. Moreover, the term business combination indicates any conditions through that two or more organizations are come together by common ownership. In this paper, Johnson & Johnson and Questcor Pharmaceuticals both are belonging to pharmacy industry, so horizontal integration method of business is used. Horizontal integration method is appropriated for that companies those are belonging to the same industry or those have been previously competitors (Moyer, McGuigan, Rao & Kretlow, 2011). In this case, J&J is a pharmaceutical company those acquire Questcor Pharmaceuticals that is also pharmaceutical company, so horizontal business combination method should use by the company.
Horizontal business combination method should use by J&J to increase its market share or growth of business, saving costs and explore new opportunities or markets.
Moreover, through this business combination method the company will effectively grow the business through cover the more market and enter in the new markets (Whittington & Delaney, 2007). This business combination method wills also effective for the company because the joining or acquisition of these two companies creates additional vales of both that is called as synergy value. The five synergies values that could happen as a result of the proposed acquisition are discussed …show more content…
below:
Revenues: If the both companies are combining then it will realize that they achieve high revenues in compare to operating separately.
Expenses: Moreover, it will also realize that after combining of companies’ expenses decline in compare the two companies run individually (Dabbah & Lasok, 2008).
Cost of capital: In addition, after combining companies it will recognize that the cost of capital also decline.
Gap filing: In this case one company (Questcor) have a major weakness of distribution and long supply chain while the other (J&J) have low market share in this segment. So, after combining both companies will fills its strategic gaps and able to survive at long-time.
Organizational competencies: Furthermore, after acquisition of companies acquiring of human resources and capital will help to improve innovation within the company and growth of the business (Whittington & Delaney, 2007).
Accounting Requirements for the Business Combination Method
Combination of business require analyzes of financial accounting for acquisitions, mergers and other combination method of business under the international and domestic accounting standard.
This horizontal business combinations method should be focused on covered international and domestic financial accounting standards that are stated in the FASB (Financial Accounting Standards Board) of USA in International Financial Reporting Standard No. 3 (IFRS 3R) (Dabbah & Lasok, 2008). Moreover, while prepare the consolidated financial statements for the date of acquisition, calculates of a value of acquiring company is also considered. The calculation of acquiring firm (Questcor) value summarized as
follow: Value (in million$)
Value of Our Company (Acquiring Company)
352
Value of Target Company
126
Value of Synergies per Phase I Due Diligence
5
Value of Goodwill
15
Less: M & A Costs (Legal, Investment Bank, etc.)
2
Total Value of Combined Company
$496.00
(Sources: Questcor Pharmaceuticals, Inc, 2013; Johnson & Johnson Limited, 2013)
Recognize Goodwill Impairment
In this case, it assumes that the goodwill has been impaired in two years of operations that means management will announce a write down goodwill in two years operations. It indicates the company will write-down and reduces goodwill in two years with $7.5 million in each year (Whittington & Delaney, 2007). In this case, the acquiring firm overpay goodwill that means it would record goodwill expense on the income statement that cause reported profits to falls. It indicates that the goodwill impaired is impacted on the financial condition and profit of the acquiring firm (J&J).
The management of the acquiring firm was determined goodwill impaired and it impacted on the financial situation of the company to control the situation and reduce the negative impacts of it in the stock prices and investors. Moreover, after that the acquiring firm could be removed goodwill “assets” from the balance sheet in the next two operating years. In this case, the goodwill must be impaired by $15 million and $7.5 million in next two years (Stice & Stice, 2011). To record the journal accounting entry, airing firm (J&J) should debit Loss on Goodwill Impairment for $7.5 million, and credit Goodwill for $7.5 million in two operating years.
References
Dabbah, M. & Lasok, P. (2008). Merger Control Worldwide: Second Supplement to the First Edition. UK: Cambridge University Press.
Johnson & Johnson Limited. (2013). Our Business. Retrieved from: http://www.jnjindia.com/products
Moyer, R.C., McGuigan, J., Rao, R. & Kretlow, W. (2011). Contemporary Financial Management (12th ed.). USA: Cengage Learning.
Questcor Pharmaceuticals, Inc. (2013). Financial Statements. Retrieved from: http://ir.questcor.com/financials-statements.cfm
Stice, E. & Stice, J. (2011). Intermediate Accounting (18th ed.). UK: Cengage Learning.
Whittington, O.R. & Delaney, P.R. (2007). Wiley CPA Exam Review 2008: Financial Accounting and Reporting. USA: John Wiley & Sons.
Business Combinations
Introduction
For this paper, selects Johnson & Johnson (J&J) and Questcor Pharmaceuticals the US companies to acquisition. This paper explains the best combination method of Johnson & Johnson for expanding the corporation through acquiring Questcor Pharmaceuticals. Johnson & Johnson pay $15 million in goodwill of Questcor Pharmaceuticals during acquisition. Moreover, it explains the reason behind the selection of combination method and the way to grow the business. It also analyzes the requirement of accounting for the combination method of business and also prepares consolidated financial statements for the date of acquisition. In addition, it also determines …show more content…
the way of goodwill was impaired and the impacts of impaired goodwill on the financial situation of Johnson & Johnson.
Business Combination Method
Business combination means a transaction through which an acquirer obtains control of other businesses. Moreover, the term business combination indicates any conditions through that two or more organizations are come together by common ownership. In this paper, Johnson & Johnson and Questcor Pharmaceuticals both are belonging to pharmacy industry, so horizontal integration method of business is used. Horizontal integration method is appropriated for that companies those are belonging to the same industry or those have been previously competitors (Moyer, McGuigan, Rao & Kretlow, 2011). In this case, J&J is a pharmaceutical company those acquire Questcor Pharmaceuticals that is also pharmaceutical company, so horizontal business combination method should use by the company.
Horizontal business combination method should use by J&J to increase its market share or growth of business, saving costs and explore new opportunities or markets.
Moreover, through this business combination method the company will effectively grow the business through cover the more market and enter in the new markets (Whittington & Delaney, 2007). This business combination method wills also effective for the company because the joining or acquisition of these two companies creates additional vales of both that is called as synergy value. The five synergies values that could happen as a result of the proposed acquisition are discussed …show more content…
below:
Revenues: If the both companies are combining then it will realize that they achieve high revenues in compare to operating separately.
Expenses: Moreover, it will also realize that after combining of companies’ expenses decline in compare the two companies run individually (Dabbah & Lasok, 2008).
Cost of capital: In addition, after combining companies it will recognize that the cost of capital also decline.
Gap filing: In this case one company (Questcor) have a major weakness of distribution and long supply chain while the other (J&J) have low market share in this segment. So, after combining both companies will fills its strategic gaps and able to survive at long-time.
Organizational competencies: Furthermore, after acquisition of companies acquiring of human resources and capital will help to improve innovation within the company and growth of the business (Whittington & Delaney, 2007).
Accounting Requirements for the Business Combination Method
Combination of business require analyzes of financial accounting for acquisitions, mergers and other combination method of business under the international and domestic accounting standard.
This horizontal business combinations method should be focused on covered international and domestic financial accounting standards that are stated in the FASB (Financial Accounting Standards Board) of USA in International Financial Reporting Standard No. 3 (IFRS 3R) (Dabbah & Lasok, 2008). Moreover, while prepare the consolidated financial statements for the date of acquisition, calculates of a value of acquiring company is also considered. The calculation of acquiring firm (Questcor) value summarized as
follow: Value (in million$)
Value of Our Company (Acquiring Company)
352
Value of Target Company
126
Value of Synergies per Phase I Due Diligence
5
Value of Goodwill
15
Less: M & A Costs (Legal, Investment Bank, etc.)
2
Total Value of Combined Company
$496.00
(Sources: Questcor Pharmaceuticals, Inc, 2013; Johnson & Johnson Limited, 2013)
Recognize Goodwill Impairment
In this case, it assumes that the goodwill has been impaired in two years of operations that means management will announce a write down goodwill in two years operations. It indicates the company will write-down and reduces goodwill in two years with $7.5 million in each year (Whittington & Delaney, 2007). In this case, the acquiring firm overpay goodwill that means it would record goodwill expense on the income statement that cause reported profits to falls. It indicates that the goodwill impaired is impacted on the financial condition and profit of the acquiring firm (J&J).
The management of the acquiring firm was determined goodwill impaired and it impacted on the financial situation of the company to control the situation and reduce the negative impacts of it in the stock prices and investors. Moreover, after that the acquiring firm could be removed goodwill “assets” from the balance sheet in the next two operating years. In this case, the goodwill must be impaired by $15 million and $7.5 million in next two years (Stice & Stice, 2011). To record the journal accounting entry, airing firm (J&J) should debit Loss on Goodwill Impairment for $7.5 million, and credit Goodwill for $7.5 million in two operating years.
References
Dabbah, M. & Lasok, P. (2008). Merger Control Worldwide: Second Supplement to the First Edition. UK: Cambridge University Press.
Johnson & Johnson Limited. (2013). Our Business. Retrieved from: http://www.jnjindia.com/products
Moyer, R.C., McGuigan, J., Rao, R. & Kretlow, W. (2011). Contemporary Financial Management (12th ed.). USA: Cengage Learning.
Questcor Pharmaceuticals, Inc. (2013). Financial Statements. Retrieved from: http://ir.questcor.com/financials-statements.cfm
Stice, E. & Stice, J. (2011). Intermediate Accounting (18th ed.). UK: Cengage Learning.
Whittington, O.R. & Delaney, P.R. (2007). Wiley CPA Exam Review 2008: Financial Accounting and Reporting. USA: John Wiley & Sons.