Mergers and Acquisitions

Mergers and acquisitions of separate companies to form larger ones often aim at the opportunity to increase long term profitability, achieve greater efficiency, accelerate growth process, expand the acquirer's business in a faster period of time, vertically integrate, and other possible motives. The targeted company will often agree to be purchased through mergers and acquisitions because of potential benefits when they know they cannot survive alone. In 2000, America Online Inc. (AOL), the nation's top Internet service provider at that time, decided to acquire Time Warner Inc., the world's top media corporation at that time. The acquisition made corporate history as the largest deal in history worth approximately $182 billion in stock and debt. The newly combined companies, now called AOL Time Warner, was on a focused path as dominating force in the music, publishing, news, entertainment, cable and Internet industries. However the merger was unsuccessful causing the company's stock to fall. According to the Financial Accounting Standards Board (FASB) website, in 2001 FASB issued a pronouncement which is having a dramatic impact on financial statement information, relating to mergers and acquisitions and their related goodwill. The Statement of Financial Accounting Standards (SFAS) No. 142, "Accounting for Goodwill and Other Intangible Assets" changed the accounting for goodwill from an amortization method to an impairment testing approach. Amortization of goodwill, including goodwill that has been recorded in post-merger transactions, ceased upon adoption of the new statement. SFAS No. 142 provisions had to be applied by companies with fiscal years beginning after December 15, 2001, although early application was permitted in certain cases. Goodwill acquired after June 30, 2001 was immediately subject to the non-amortization provision. Requiring companies to identify reporting units and perform goodwill impairment tests will presumably

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