Chapter 1, Introductory Cases Dublin Small Animal Clinic, Inc. 1 page; introductory



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Undergraduate intermediate accounting

First-year MBA/Executive MBA financial accounting

Financial reporting

Financial statement analysis



  1. Thomson’s Acquisition of Reuters (A)

24 pages; intermediate

Business combinations

Divestitures

IFRS

Pro-forma results

Valuation


The (A) case is a good introduction to business combinations and to measuring the fair value of acquired assets and liabilities, including intangibles. The case is easy to understand and is interesting. It has an international flavor since the case discusses the acquisition of Reuters, a British company that reports under IFRS, by Thomson, a Canadian company that reports under Canadian GAAP, but that is headquartered in Stamford, Connecticut.

The case covers several interesting issues. First, it describes how Thomson grew through acquisitions, primarily in the newspaper industry, but also in oil and gas exploration and the travel industry. Firms often overpay for acquisitions and have difficulty integrating the acquired firms. Thomson was incredibly successful with nearly all of its acquisitions.

The case then describes how Thomson entirely transformed itself by selling off its oil and gas interests and travel interests to enter electronic publishing, and how it sold off its entire newspaper holdings at the height of their value, and shortly before the entire newspaper industry collapsed. Thomson used those funds to expand its electronic publishing. Finally, Thomson sold its major book publishing division, Thomson Learning, to a private equity firm in 2007 at what was probably the height of value for book publishers, and acquired Reuters.

The case can also be used to consider the validity of fair value accounting. Thomson was required to record the fair value of various intangible assets it obtained when it acquired Reuters. Thomson valued four significant intangibles: trade names; customer relationships; developed technology, and; other.

Thomson also reported pro-forma results that show operating profit had the acquisition occurred a year earlier, and pro-forma results for the current period so readers could determine how the combined firm performed relative to the prior year. The case provides enough information for a discussion of whether the acquisition was worth its value.




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