The following article is adapted and reprinted from the M&A Tax Report, Vol. 8, No. 7, February 2000, Panel Publishers, New York, NY.
DON'T FORGET ABOUT POOLING
By Robert W. Wood
Okay, so no one is quite forgetting about pooling yet. Recently we contrasted recapitalization accounting with pooling. See Wood, "Recapitalization Accounting," Vol. 8, No. 5, The M&A Tax Report, December 1999, p. 4. We noted there, as all readers know, that the FASB is attempting to eliminate pooling. The likely effective date will be the end of this year. For recent additional coverage, see Wood, "'Pooling of Interests' Accounting to be Ousted," Vol. 7, No. 11, The M&A Tax Report, June 1999, p. 1.
As The M&A Tax Report predicted (and many others for that matter), the end (or what the Financial Times dubbed the "demise") of pooling in the first weeks of the new year may now be seen as floodgates that are wide open and scheduled to close at year's end. In a purchase, of course, the amount paid over the fair market value of an acquired company is booked as goodwill, deducted as an expense from earnings. A pooling of interests has no such charge to earnings. Given the multiples at which some companies sell today, the charge vs. no charge issue is highly charged (sorry, I couldn't resist!).
Some argue that sophisticated investors see this charge vs. no charge issue as a superficial one, simply because cash earnings ought to be the same. But pooling can increase tangible equity (particularly for entities like banks), making them appear more secure.
This year is likely to be a busy one, whether driven by pooling or not. See Silberman, "Demise of Pooling Could Drive Mergers," Financial Times, January 3, 2000, p. 16. Some of the many hundreds of deals that we can expect to see over the course of this year will probably be driven at least in part by the desire to cash in on the waning days of the pooling millenium.
Don't Forget About Pooling, Vol. 8, No. 7, The M&A Tax Report (February 2000), p. 7.