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PricewaterhouseCoopers TS Insights - Goodwill Impairment Implications in the Current Market Turmoil

Posted on: Wednesday, 8 April 2009, 07:00 CDT

Goodwill Impairment Announcements Have Had Minimal Impact on Share Price

More Goodwill Impairment Announcements Likely Around the Corner

NEW YORK, April 8 /PRNewswire/ -- The number of goodwill impairments has increased dramatically in correlation with the plunge in stock prices in 2008, according to a new TS Insights report from PricewaterhouseCoopers (PwC). Titled Goodwill Impairment Implications in the Current Market Turmoil, the report points out that from third quarter 2008 through March 20, 2009, Fortune 500 companies have announced approximately $230 billion worth of impairments, which is more than twice the total of impairments recorded by Fortune 500 companies during the three years leading up to third quarter 2008.

"With further stock price declines in the beginning of 2009 and continued uncertainty in the markets, more goodwill impairment announcements are likely around the corner," warns Alberto Dent, a partner with PricewaterhouseCoopers' Transaction Services practice. "However, management teams that are anxious about announcing a goodwill impairment in today's market often overlook one key item -- recent goodwill impairment announcements typically have had a muted effect on stock prices by the time of the announcement."

PwC's review of daily and monthly historical trading prices for companies announcing recent impairment compared with performance of the S&P 500, revealed that there has been little impact to share price for companies as of the goodwill impairment announcement date. PwC found that for many of the companies announcing recent impairments, most of the decrease in stock price occurred on or before the October/November 2008 timeframe, and not necessarily when the impairment was announced.

Index versus S&P 500 - Daily

To illustrate using the week ending on January 30, 2009, 30 companies announced impairments representing approximately $25 billion in charges. The stock price performance of these 30 companies has effectively mirrored the S&P 500 since the beginning of 2009 through March 20, 2009.

The report concluded that recent market turmoil, coupled with the complexities of goodwill impairment testing, will require companies to continually monitor potential triggering events. "Although recent goodwill impairment announcements typically have produced only muted effects on stock prices, reviewing public information regarding impairment charges can help management consider the impact an impairment charge would have on its company," said Dent. "This, in turn, can enable management to articulate a broader perspective of their business -- both internally and to the public markets."

For a copy of PricewaterhouseCoopers' TS Insights - Goodwill Impairment Implications in the Current Market Turmoil report, visit www.pwc.com/ustransactionservices.

About Transaction Services

The PricewaterhouseCoopers' Transaction Services practice provides due diligence for M&A transactions, along with advice on M&A strategy, divestitures, valuations, accounting, financial reporting, and capital raising. With approximately 1,000 deal professionals in 16 cities in the U.S., experienced teams are deployed with deep industry and local market knowledge, and technical experience tailored to each client's situation. The Transaction Services team can be involved from strategy to post-deal integration and employ an integrated business approach to uncover the realities of a deal. The field-proven, globally consistent, controlled deal process helps clients minimize their risks, progress with the right deals, and capture value both at the deal table and after the deal closes.

For more information, visit www.pwc.com/ustransactionservices.

About PricewaterhouseCoopers

PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 154,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

(C) 2009 PricewaterhouseCoopers. All rights reserved.

SOURCE PricewaterhouseCoopers' Transaction Services

Source: PR Newswire

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