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IFRS 3 – Business Combination

18 May 2009 753 views 4 Comments

Dear All,

My question is that, in a situation of merger or business combination, where the structure is such that a new company A is formed to take over the businesses of B and C.

The question is whether IFRS 3 Business Combinations is applicable in this case as practically the entire IFRS 3 is based on an Acquirer and an Acquiree which are not present in this structure.

Thanks

Zuhar

4 Comments »

admin (author) said:

Message from Hitesh

B and C are the acquiree and A is Acquirer IFRS 3 is equally applicable .
thanks .
hitesh

# 18 May 2009 at 8:53 am

admin (author) said:

Message from Narman

When a new entity is formed to issue equity instruments to effect a business combination, one of the combining entities that existed before the combination shall be identified as the acquirer on the basis of the evidence available.

Although sometimes it may be difficult to identify an acquirer, there are usually indications that one exists. For example:

(a) if the fair value of one of the combining entities is significantly greater than that of the other combining entity, the entity with the greater fair value is likely to be the acquirer;

(b) if the business combination is effected through an exchange of voting ordinary equity instruments for cash or other assets, the entity giving up cash or other assets is likely to be the acquirer; and

(c) if the business combination results in the management of one of the combining entities being able to dominate the selection of the management team of the resulting combined entity, the entity whose management is able so to dominate is likely to be the acquirer.

# 18 May 2009 at 9:26 am

amit3.jain said:

I agree with this view:

Message from Narman

When a new entity is formed to issue equity instruments to effect a business combination, one of the combining entities that existed before the combination shall be identified as the acquirer on the basis of the evidence available.

Although sometimes it may be difficult to identify an acquirer, there are usually indications that one exists. For example:

(a) if the fair value of one of the combining entities is significantly greater than that of the other combining entity, the entity with the greater fair value is likely to be the acquirer;

(b) if the business combination is effected through an exchange of voting ordinary equity instruments for cash or other assets, the entity giving up cash or other assets is likely to be the acquirer; and

(c) if the business combination results in the management of one of the combining entities being able to dominate the selection of the management team of the resulting combined entity, the entity whose management is able so to dominate is likely to be the acquirer

# 21 May 2009 at 5:11 pm

admin (author) said:

Message from Alan

Dear all,

I disagree on the matter.

The acquirer is either B, C or both B&C (if B&C is considered as operating under the same environment).

This is accordance with Reverse Acquisition Considerations.

I am working on the assumption that A is a shell holding co.

As such, fair value uplifts are only applicable to A and potentially one other subsidiary:

Example:

B&C if operating as one > acquires A under Reverse Acquisition => A fair value uplift only

B (largest decentralized entity) > acquirers A under Reverse Acquisition and subsequently acquire C under normal acquisition > A & C fair value uplift.

Again, I qualify that I am working on A being a shell co, formed as a holding vehicle.

To clarify again:

In other words, if A is purely a holding vehicle, A will NEVER be considered the acquirer.

It shall either be a combo of B&C (is centrally managed) or B/C (whichever is larger)

Regards,

# 10 July 2009 at 8:44 am