Acer Acquisition of Igware Inc and Lenovo Acquisition of IBM X86 Server Business - Case Study Example

Acer acquisition of iGware Inc. and Lenovo acquisition of IBM X86 server business Introduction Acer is a multinational hardware and electronic corporation of Taiwan. Its headquarter is at Xishi. It was founded in 1976. The chief executive officer of Acer Inc is Jason Chen. The products offered by Acer include desktop, laptop, tablets, smart phones etc. Acer is considered to be the fourth largest vendor of personal computer in the world. IGware is the company that operates mainly in the industry related to engineering services. It is located in Silicon Valley California. It is considered to be the leading provider of cloud technology which is offering cloud based ecosystem devices. Acer is planning to acquire the US based company iGware which is the leading cloud technology company. The main objective of its acquisition is that Acer will acquire IGware technology for establishing its own cloud infrastructure. Acer is of the opinion that Acer cloud is expected to be considered as important element which will create a unique variety and differentiated Acer products. Lenovo is a multinational company of China which deals with computer technology. It was founded in the year 1984. Its founder is Liu Chuanzhi. It is a public company. IBM which is referred as International Business Machine is a multinational technology of America. IBM headquarter is located in New York. Its founder is Thomas J Watson. Lenovo plans to acquire IBM X 86 servers. Buying of IBM X86 server business by Lenovo is a boon for Lenovo. Discussion Acer acquisition of IGware: Acer acquired IGware on 12th January 2012. Acer acquired 100% equity of IGware for a consideration of 4,928$ million. IGware merged with cloud technology Inc which is a US subsidiary on the very same day. For the purpose of retaining the restricted stock units IGware paid to the employee shareholders of its company an amount of 18,144 $ and also issued a common stock of 11,517,053 shares to the shareholders of IGware. The cloud technology has become the major trend in the technological industry Acer acquisition of IGware will provide long term development. The acquisition of IGware was done according to the Accounting for Business Consideration which explains the surplus of the cost occurred from the direct transaction and purchase over the fair value of net identifiable assets are considered or regarded as the goodwill. Allocated amounts are amortized based on the methods adopted for the related assets. The differences in the unallocated asset are treated as the goodwill for the investors. This will reduce the value of the non current asset to zero and the excess or the surplus that is left out over the cost of acquisition is to be treated as an extraordinary gain. The operating result of the company is supervised on a regular basis for allocating the resources to the segments and also for the assessment of the performance on the basis of the discrete financial information. Intangible asset like goodwill is not amortized but it is annually tested for impairment. The intangible asset with useful life is amortized. Deferred charges are amortized on the basis of the estimated useful life and also over the duration of loan. The allocated amounts are amortized on the basis of the use of the related assets. The impairment loss related to goodwill or other acquired asset. The impairment loss is established for those assets whose amount of carrying is more than the recoverable amount. The intangible asset like goodwill who have a indefinite useful life and the other intangible assets that are not available are generally tested for the purpose of impairment. The reversal of impairment cost applied on goodwill is restricted. The changes in the fair value other than that of the foreign currency and the impairment loss are generally available for sale. The Consolidated Financial Statements have been prepared in accordance with the accounting principles that is formulated and accepted in the ROC. The financial statements are prepared not with the intention of providing the financial position and the cash flow of the consolidated companies. The consolidated financial statements have been prepared with the intention in exercising the control of the company over its operations of subsidiary and other financial policies. International Financial Statement has also been prepared by the associates of the equity methods for identifying and comparing the important differences between the current accounting policies. It was found that there is no material inconsistency in the accounting policies formulated for the operating segments (Acer) GAAP which stands for Generally Accepted Principles is used under ROC for the following estimation: ROC GAAP is used for the estimation in sales allowance which is considered for the deduction of the account receivable. The deferred income tax assets or the income tax liability is categorized into related assets and liability. The valuation allowances are provided in such a way that not deferred income tax will not be considered. Accounting policies have formulated the adjustment of the consolidated companies. The adjustment was formulated for decreasing the investment in equity method and also the gain from the investment that is recognized by application of the equity method. The impact of the conversion of accounting policies to International Financial Reporting Standard is that the company has formulated a taskforce with the purpose of monitoring and executing the plan of IFRS. Impact of Acquisition on Financial Statements The impact of acquisition on Income Statement The impact can be compared with the help of the financial year 2011 and the acquisition year 2012 which indicates that the financial position of the company have not increased or developed significantly after the acquisition. Impact on the balance sheet After the acquisition it is found that the financial condition has worsened as compared to that in 2011 before the acquisition. Impact of acquisition on the cash flow The cash flow indicates that there is not much difference in the financial position of the company after its acquisition. The acquisition has impacted the company’s financial performance, corporate business, shareholder equity and share swap. Lenovo acquires IBM X86 server business Lenovo is considered as the largest personal technology company and it is engaged in building the mobile internet devices, a high efficient global chain, after the acquisition of the IBM the company manufactures high quality, easy to use technology and services. Lenovo have acquired 18.9 % of the ownership of IBM. With the acquisition of IBM, Lenovo will be considered as the largest player with 42.1$ billion Lenovo which is buying IBM x 86 servers is very much intact with the business. IT was acquired on 26th November 2014. Lenovo announcement of the acquisition of IBM have formulated a strategic alliance and Lenovo e will serve in the form of Original Equipment Manufacturer. The strategic alliance mainly dealt with the fact that Lenovo will now offer the products as a comprehensive enterprise for IT solutions. Lenovo is acquiring X86 server business which includes the continuous solution of INBM storewide. The financial statements of the Lenovo are prepared on the basis of Hong Kong Financial Reporting Standards. This financial report is prepared on the basis of the convention of historical cost with the exception that some financial assets and some financial liabilities are interpreted at fair values. The preparation of this financial statement requires the application of certain accounting estimates that are critical. Impact of the acquisition of IBM by Lenovo can be discussed with the help of the following financial statements: Impact on the Income Statement of Lenovo after acquisition As the acquisition has taken place recently that is on September 2014 , the impact of acquisition on financial statement cannot be determined clearly. But on the basis of the graph it is revealed that there is a slight progress and development in the company after its acquisition. Therefore it can be recommended that the decision of acquisition was a appropriate decision. Impact on the Balance Sheet of Lenovo after acquisition On the basis of the balance sheet it is understood that the total current asset , total asset, total equity have increased after the acquisition. The total current asset of the company has increased after its acquisition of IBM which indicates that the company has a sound liquidity position and the company will be able to meet all its short term liabilities, debt obligations. Thus it can be seen that the impact and the influence of the acquisition is more and it will lead to the progress and growth of Lenovo (LENOVO). Impact on the Cash Flow after its acquisition On the basis of the cash flow statement it is observed that the cash flow from operating activities and the cash flow from the financing activities have increased after the acquisition of IBM by Lenovo. But on the contrary it is found that the cash flow from the investing activities has decreased after its acquisition. Therefore it can be concluded that the acquisition have positively influenced the cash flow statement (Bergevin, 85). The acquisition has impacted on the revenue of the company. The revenue of the company is measured at the fair value. The acquisition provides a clear picture of the confidence that was earned on the basis of the consistent track record of the investors and also as a reliable and secure technology provider. Disclosures pertaining to the acquisition to meet the handbook disclosures requirement for business combination Acer: Business combinations are prepared according to the disclosures of business combination. The acquisition cost mainly refers to the amount paid for the cash and cash equivalents and also the fair value of the purchase considerations including the cost that is required for the acquisition. The acquisition cost which exceeds from its fair value in case of the net tangible and intangible assets acquired that are identifiable are referred to as the goodwill. Lenovo: Lenovo takes into account the acquisition method for the business combination into account. The consideration is required for the acquisition of the subsidiary for the transfer of the fair value of the assets, the liabilities levied on the former owner, and the equity interest that is provided by Lenovo. The assets that are identifiable are acquired and the contingent liabilities and the liabilities are initially measured at the fair value on the acquisition date. Lenovo generally identifies the acquisition at a fair value and the proportionate share of the non controlling interest that recognizes the amount of the net identifiable assets that are required. Strategic rationale for acquisition The reason for the acquisition of IGware by Acer is for delivering new and quality service to its customers by applying the technology of IGware which is well known as the Acer cloud and it is aim is towards providing better service to its customers for developing and enhancing its brand. The reason for the acquisition of IBMX86 Server business by Lenovo is that it wants to acquire the whole networking products of the system and developing the operating system which includes the service and the support. Conclusion The topic discussed about the acquisition activity undertaken by the two companies. First the acquisition of I Gware by Acer and the acquisition of IBMX 86 Server business by Lenovo. On the both cases it has been observed that the acquisition has impact and influence over the financial statement of the parent company. In a way the financial statement reflects the financial condition and status of the organization. The acquisition of IGware by Acer took place on 12 of January 2012 and the acquisition of IBM by Lenovo took place on September 2014. But if the comparison of the financial statements including the income statement, balance sheet, cash flow statement of both the companies is considered after the acquisition it is found that the positive impact of the financial statement after the acquisition is on Lenovo. Since Lenovo acquired IBM only two months back but it have impacted positively towards the increase in revenue, current assets etc. But on the other hand Acer has acquired IGware on 2012 but no significant changes and impact have been observed on the financial statements. It cannot be concluded that one acquisition is better than that of the other as the two different companies has two different types of strategy and tactics. But on the basis of the financial statement it is observed that the acquisition of IBM by Lenovo is contributing towards the growth and development of Lenovo. References Lenovo. Lenovo Set to Close Acquisition of IBM’s x86 Server Business. 29 September 2014. Web.26 November 2014 http://www.lenovo.com/ww/lenovo/pdf/Press%20Release_Lenovo_Set%20to%20Close%20Acquisition%20of%20IBMsx86%20Server_Business_Eng.pdf Lenovo. Lenovo Group Limited 2013/14 Annual Report. 2014. Web. 26 November 2014 http://www.lenovo.com/ww/lenovo/pdf/report/E_099220140529a.pdf Acer. Acer Incorporated 2012 Annual Report. 7 May 2013. Web. 26 November 2014 < http://www.acer-group.com/public/Investor_Relations/pdf/2012_Acer_Annual_Report-English.pdf> Acer. Acer’s Annual Report on its activities under remit in 2012. Web26 November 2014 < http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/REMIT%20Annual%20Report%202013.pdf> Bergevin. Peter. Financial Statement Analysis: An Integrated Approach. Texas: Prentice Hall. 2002. Print. Acer. Acer Incorporated and Subsidiaries. 25 April 2012. Web 26 November 2014 < http://www.acer-group.com/public/Investor_Relations/pdf/1Q12_Consolidated_Eng.pdf> Read More