The International Accounting Standards Board (IASB) recently announced new standards on business combinations and non-controlling interest that share some important similarities with those released in December by FASB.
?The fact that the standards are very similar is a further step towards greater consistency between IFRS and US GAAP,? said Mary Tokar, head of KPMG International Financial Reporting Group. ?Although not 100 percent identical, the two boards worked to reach agreement not just on concepts and principles, but also on using the same wording,? she continued.
In a recent announcement from KPMG on the new standards, the accounting firm noted that progress on convergence is one of the factors supporting the recent changes to the SEC rules, which allow foreign private issuers to use IFRS as published by the IASB without having to reconcile those results to US GAAP.
The US standards require non-controlling interests to be measured at fair value, i.e., a ?full fair value method? in accounting for business combinations, which effectively means that an acquirer will recognize the full goodwill of the acquiree, including goodwill relating to non-controlling shareholders. The international standards allow the full fair value method, but companies also have an option to follow the current IFRS model whereby goodwill relating to non-controlling shareholders is not recognized.
Tokar noted that the international standards require less change for IFRS users than for entities reporting under US GAAP. This is partly to the option that is available in the international standards, but not in the U.S. standards, to limit the recognition of goodwill to the controlling interest acquired. It is also because the Boards drew on the IASB's current business combinations standard, which was issued after the comparable US standard. In several areas existing IFRS requirements were the starting point for the two Boards. Tokar commented: ?The boards were able to build on progress made to date in a way that reduces the degree of change required for IFRS preparers.?
KPMG warns that the limited changes to existing international standards should not lull companies into complacency, Tokar said: ?Companies applying IFRS are advised to look carefully at the new requirements. In particular, the new standards require purchases and sales of non-controlling shareholdings when control is retained to be accounted for fully as equity transactions, which will reduce the current diversity in accounting for such transactions.?
KKR pays TXU GC $5 million to stay
KKR's portfolio company Energy Future Holdings Corp., once known as TXU, has agreed to pay its general counsel, David Poole, roughly $5 million to stay during the transitional period. A spokesman for Energy Future explained that Poole had the right to leave the company when it was bought by the private equity firm. As a result, Poole will get $982,400, representing a cash severance he would have received if he had been terminated, though he was not fired. The GC will also get $4.2 million, which represents the amount of stock awards he would have been granted in 2008 and 2009, multiplied by the price private investors paid for TXU shares last year, according to an SEC filing. KKR completed the acquisition of the energy company in October last year, in one of the largest buyout transactions ever, with a value of $45 billion.
American Capital: We're undervalued
American Capital Strategies, the NASDAQ-listed alternative asset company, has announced that its share repurchase program has been approved by its Board of Directors. In the announcement, the firm's chairman and CEO, Malon Wilkus explained the program is largely motivated by the public market undervaluing its true worth: ?With less than 0.8:1 debt to equity, American Capital has one of the best capitalized balance sheets of any public financial institution. We received approximately $5.7 billion of repayments and realizations from our portfolio last year, $3.8 billion since the start of the credit crunch, and we are reinvesting this capital at great risk adjusted returns. This is many times more capital available for reinvestment than most of our competitors have as capital. With such liquidity, we believe that acquiring up to a half billion dollars of our shares at prices below American Capital's net asset value will be accretive to our earnings per share and net asset value per share and will also provide a great risk adjusted return to our shareholders and enhance our ability to grow dividends.? American Capital went public over a decade ago, and presents a rare example of how publicly traded alternative asset companies will be valued over the long term.
Dubai creates hedge fund code
The Dubai Financial Services Authority has issued a new set of best practice standards for hedge funds. The Hedge Funds Code of Practice stipulates nine key principles relating to operations, assets, back-office functions and market risks. Among them are guidelines stating that a hedge fund operator should have ?systems and controls to mitigate trading-related risks such as price overrides and failed trades,? and that a hedge fund operator ?should not have arrangements under which any material benefits or concessions are provided to some investors where it would be unfair to any other investors in the fund. ?The DFSA's Code is the first of its kind to be issued by a regulator,? DFSA chief executive David Knott said in a statement. ?Having received highly positive feedback throughout the consultation period, we are confident that the code will provide investors and hedge fund managers with a backdrop for the successful development of hedge funds in the DIFC by ensuring the industry has the necessary regulations in place to prosper.?
Oaktree buys stake in MTS
Oaktree Capital Management has furthered its franchise expansion with the acquisition of a minority stake in fellow alternative fund manager MTS Health Partners. The amount Oaktree paid for a minority percentage of the New York-based, healthcare-focused private equity firm was not disclosed, though the firms said in a statement that Oaktree's ?small minority investment? will be used as growth capital for expansion of MTS' merchant banking platform. ?We share the view that marrying premier intellectual capital with long-term value-oriented financial capital solely dedicated to the healthcare industry will create significant value for our clients and our investors,? Curtis Lane, MTS founder and senior managing director, said in a statement.