Acquired businesses are accounted for using the purchase method, which requires that the assets acquired and liabilities assumed be recorded at their respective fair values applicable on the date WACKER gains control.
The determination of the fair values requires certain estimates and assumptions especially concerning the acquired intangible assets, property, plant and equipment, as well as the liabilities assumed and the useful lives of the acquired intangible assets, property, plant and equipment.
Measurement is based to a large extent on anticipated cash flows. If actual cash flows vary from those used in calculating fair values, this may affect future net income.
For significant acquisitions, the purchase price allocation is carried out with assistance from independent third-party valuation specialists. The valuations are based on information available at the acquisition date.
Disclosures on the Acquisition of Holla Metall on July 1, 2010, as per IFRS 3
Wacker Chemie AG concluded its acquisition of the silicon-metal production site in Holla (near Trondheim), Norway, from the FESIL Group (Norway) on July 1, 2010. This strategic investment secures WACKER’s long-term supply of silicon metal and makes it more independent of fluctuating raw-material prices. Holla Metall’s production capacity is around 50,000 metric tons of silicon metal per year, which corresponds to about a third of WACKER’s current annual needs. The purchase price of €66.5 million was fully paid in cash during Q3 2010. There are no contingent considerations or outstanding purchase-price installments.
Silicon metal is one of WACKER’s key raw materials. It is primarily used for producing silicones and hyperpure polysilicon. The silicon-metal market is volatile. This is because there are roughly ten silicon-metal manufacturers worldwide and their plant-utilization levels vary. The Holla site is able to supply a very pure grade of silicon metal that meets WACKER’s requirements.
As part of an asset deal effective as of July 1, 2010, WACKER acquired all of FESIL’s production facilities in Holla, including the related real estate and working capital. WACKER has taken on the 129 employees at Holla. The purchase price allocation complied with IFRS 3 because the acquisition of the site meets IFRS 3 criteria. First-time consolidation of the transaction took effect July 1, 2010.
The values determined at the time of acquisition and the fair values of the assets acquired and liabilities assumed pursuant to IFRS 3 are as follows:
| download table |
|
€ million |
Value |
Purchase |
Fair value | |||
|
|
|
|
| |||
|
Other intangible assets |
– |
10.7 |
10.7 | |||
|
Land, buildings |
3.1 |
3.1 |
6.2 | |||
|
Property, plant and equipment |
15.9 |
15.9 |
31.8 | |||
|
Inventories |
13.0 |
– |
13.0 | |||
|
Trade receivables |
14.2 |
– |
14.2 | |||
|
Other current financial assets |
0.1 |
– |
0.1 | |||
|
Cash and cash equivalents |
0.4 |
– |
0.4 | |||
|
Total assets acquired |
46.7 |
29.7 |
76.4 | |||
|
Provisions for pensions and similar obligations |
0.5 |
– |
0.5 | |||
|
Finance lease obligations |
2.3 |
– |
2.3 | |||
|
Trade payables |
3.5 |
– |
3.5 | |||
|
Other current financial liabilities |
2.5 |
– |
2.5 | |||
|
Other provisions and non-financial obligations |
1.1 |
– |
1.1 | |||
|
Total obligations assumed |
9.9 |
– |
9.9 | |||
|
Total net assets acquired |
36.8 |
29.7 |
66.5 |
The hidden reserves, reported as intangible assets in the purchase price allocation, mainly consist of the acquired technological expertise and acquired order backlog from existing supply contracts.
A minor negative difference of €24,000 is retained from the purchase of Holla. This difference has been reported under other operating income. No contingent liabilities or contingent assets have been recognized. Trade receivables were measured at fair value at the time of acquisition. No impairments were applied to the contractual receivables.
Since the time of acquisition, the Holla production site contributed €-1.8 million to the Group’s EBITDA. The Holla site posted sales to external third parties of €25.5 million for the period July 1 through December 31, 2010. If the transaction had taken place as of January 1, 2010, consolidated sales would have been around €17 million higher and consolidated EBIT would have increased by about €1.1 million.
In addition, as part of an asset deal, WACKER acquired the South Korean brand Lucky-Silicone and its production facilities, including the related real estate, effective as of December 6, 2010. The inventories and receivables related to this business were also assumed. On the whole, silicone sealants are manufactured and marketed in South Korea under the Lucky-Silicone brand. The purchase price was €14.7 million and was fully paid in cash. At the time of the acquisition, the carrying amount of the acquired assets was €9.2 million, compared to liabilities of €0.3 million. The difference between the carrying amount of the acquired net assets and the purchase price is mainly accounted for by the hidden reserves in the fixed assets (€0.9 million), acquired intangible assets derived from trademark rights and the customer base (€4.5 million), and a small amount of goodwill (€0.4 million). The purchase price allocation was concluded on December 31, 2010. No substantial impact on the Group’s sales and earnings resulted from the purchase. Had this transaction taken place as per January 1, 2010, consolidated sales would have been around €20 million higher and EBIT would have been up some €2 million.
The transaction costs attributable to the acquisition totaled €0.3 million and were reported in the statement of income.
In December 2010, WACKER sold its 50-percent stake in the joint venture Planar Solutions LLC, USA, for €25.4 million to its joint venture partner FUJIFILM Electronic Materials. The carrying amount of the equity investment was €6.9 million. Profit from the sale is reported under other operating income. The disposal proceeds of $34.5 million were paid entirely in cash.