Abbott Laboratories AMO Acquisition Essay Example

Abbott Laboratories AMO Acquisition Paper Abbott Laboratories, based in Chicago, Illinois, is a global pharmaceuticals and health care conglomerate. They were originally known for developing the first ever HIV blood screening test in 1985. Created in 1888 by Dr. Wallace Calvin Abbott, the company has grown to a $35 billion revenue BioPharma powerhouse. One of their go-to growth moves is acquisition. These acquisitions have added to their portfolio such brand names as Ensure, EAS and Similac just to name a few. In 2009, they continued this trend and broke into the vision care market by acquiring Advance Medical Optics Corporation for $1. 4 billion on February 26, 2009. According to Abbotts 2009 10-K filed with the SEC, Abbott acquired AMO to take advantage of increasing demand for vision care technologies due to population growth and demographic shifts and AMOs premier position in its field. ? (SEC, 2010, p. 36) 1) As it was 2009, Abbott used the acquisition method of accounting for business combinations. As stated in Note 11 of their 10-k, On January 1, 2009, Abbott adopted the provisions of SFAS No. 141 (revised 2007), Business Combinations, as codified in FASB ASC No. 805, Business Combinations. Under ASC No. 805 ? We will write a custom essay sample on Abbott Laboratories AMO Acquisition specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Abbott Laboratories AMO Acquisition specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Abbott Laboratories AMO Acquisition specifically for you FOR ONLY $16.38 $13.9/page Hire Writer (SEC, 2010). According to the revised statement, the acquirer is required to now recognize contingent liabilities at fair value, to expense direct combination costs and to now recognize in-progress RD as an asset until it is discontinued or approved by the acquiring company. (FASB, 2007) The original FASB 141 posited that contingent liabilities can just be ignored, direct combination costs adjusted goodwill as part of the consideration paid, and IPRD was immediately expensed. As will be mentioned in subsequent answers, they consistently used the tactics put forth by the revised FASB statement. 2) The calculation for goodwill along with the allocations for the fair valued assets acquired were: I. Acquired intangible assets, including established customer relationships, developed technology and trade names were valued at $900 million II. Acquired in-process research and development was valued at $200 million III. Acquired net tangible assets, including trade accounts receivable, inventory, property and equipment and other assets were valued at $400 million. The net tangible assets figure is net of assumed liabilities including trade accounts payable, accrued compensation and other liabilities IV. Total assets were therefore $1. 5 billion V. Acquired debt was valued at $1. 5 billion VI. There was a deferred income tax of $300 million VII. Total liabilities (other than those offset within net tangible assets) is $1. 8 billion VIII. Net identifiable assets = $1. 5 billion $1. 8 billion = ($300 million) IX. Consideration paid = $1. 4 billion X. $1. 4 billion â€Å" ($300 million) = 1. 7 billion XI. Goodwill is recognized at $1. 7 billion (SEC, 2010, p. 36) 3) So as to keep with the rules set forth in the provisions of SFAS No. 141 Business Combination ? (FASB, 2007), Abbott did the following. In their 2009 Annual Report issued to their shareholders, Abbott stated, ? The preliminary allocation of the fair value of the acquisition resulted in non-deductible acquired in-process research and development of approximately $195 million which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation. ? (Abbott Laboratories, 2010) This is consistent with the acquisition method. 4) Acquisition-related costs are costs that Abbott incurred during the business combination with Advanced Medical Optics. Abbott incurred approximately $89 million of acquisition-related expenses in 2009 which are classified as Selling, general and administrative expense. ? (Abbott Laboratories, 2010). This is also consistent with the acquisition method as direct combination costs are expensed as they are incurred rather than being added to the parents consideration given when purchasing the subsidiary. 5) Before the acquisition Abbott had small investments in AMO and was clearly satisfied with those investments. Abbott acquired AMO to take advantage of their vision care technology. Over the years there had been an increase in the demand for vision care innovation. AMO rose to the occasion and grew to be considered a leader in the vision care sector. AMO is a worldwide specialist in the development, manufacturing and marketing of its products. These traits made AMO attractive and its acquisition would give Abbott the upper hand over its competitors. The acquisition of AMO allowed Abbott to become a leader in vision care products, and furthered its strategy of diversification that made it one of the best performing healthcare companies during the recession. (Pierson Krauskopf, 2009) Bibliography : Abbott Laboratories. (2010, February 19). 2009 Annual Report. Retrieved from media. corporate-ir. net: http://media. corporate-ir. net/media_files/irol/94/94004/Proxy_Page/AR2009. pdf FASB. (2007, December). FASB 141(R). Retrieved from FASB. org: http://www. fasb. org/cs/BlobServer? blobkey=idblobnocache=trueblobwhere=1175820919432blobheader=application/pdfblobcol=urldatablobtable=MungoBlobs Pierson, R. , Krauskopf, L. (2009, January 12). Abbott enters eye arena with $1. 4 billion AMO deal. Reuters. SEC. (2010, February 19). Abbott Laboratories 2009 10-K. Retrieved from SEC. gov: http://www. sec. gov/cgi-bin/viewer? action=viewcik=1800accession_number=0001047469-10-001018xbrl_type=v#