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Trouble for a dangling carrot
CFO.com has an instructive story about the complications that may arise with the $50 million deal Martha Stewart Living Omnimedia recently struck with celebrity chef Emeril Lagasse. At issue is a $20 million "earnout," a sum Lagasse and his partners could collect if they deliver on profits. An earnout itself is a way to keep an existing management team in place.
One hitch is how and when MSLO will record the earnout. A new Financial Standards Accounting Board rule (FAS 141-R) governing such transactions, which goes into effect on December 15, 2008, may force Stewart's company to record the earnout as part of the purchase price unless the deal closes before that date. According to CFO.com:
Trouble for a dangling carrot
February 28, 2008
CFO.com has an instructive story about the complications that may arise with the $50 million deal Martha Stewart Living Omnimedia recently struck with celebrity chef Emeril Lagasse. At issue is a $20 million "earnout," a sum Lagasse and his partners could collect if they deliver on profits. An earnout itself is a way to keep an existing management team in place.One hitch is how and when MSLO will record the earnout. A new Financial Standards Accounting Board rule (FAS 141-R) governing such transactions, which goes into effect on December 15, 2008, may force Stewart's company to record the earnout as part of the purchase price unless the deal closes before that date. According to CFO.com:
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Under the current FAS 141, contingent considerations — which include earnouts — are estimated if they are determinable, and recorded on the buyer's balance sheet when the payout is made in the future. In addition, the future earnout is added to the buyer's goodwill at the time of the payout, and earnings are adjusted up or down accordingly, depending on whether the addition of the earnout payment shows that the buyer paid too much for the target, or got it at a bargain price. |
Posted by David Farkas on February 28, 2008 | Comments (0)
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