Problem
Microtech Corporation and Webnet Solutions, Inc. have identical balance sheets, as follows (in millions):
Assets
Current assets .......................................................................... $10
Property, plant and equipment, net ................................................... 50
Patents ..................................................................................... 5
Total assets ............................................................................. $65
Liabilities and Stockholders' Equity
Current liabilities ...................................................................... $ 4
Long-term debt ........................................................................ 20
Common stock, par value .............................................................. 2
Additional paid-in capital ............................................................ 25
Retained earnings ..................................................................... 14
Total liabilities and equity .......................................................... $65
Microtech's property, plant and equipment has a fair value of $70 million, and its patents have a fair value of $15 million. Microtech also has developed technology with a fair value of $100 million and client relationships worth $29 million. Both intangibles satisfy the Codification's criteria for capitalization. Webnet Solution's assets and liabilities are all fairly stated and it has no previously unrecorded intangibles. Assume that the two companies have the same stock price.
Microtech and Webnet Solutions are planning a business combination. One company will issue $200 million in stock, with a par value of $1 million, for the stock of the other company. They are not sure who will issue the stock, and therefore who will be the acquirer in this transaction.
Required
a. Prepare a consolidated balance sheet working paper, assuming Microtech is the acquiring company and issues $200 million in stock for all of the stock of Webnet Solutions.
b. Prepare a consolidated balance sheet working paper, assuming Webnet Solutions is the acquiring company, and issues $200 million in stock for all of the stock of Microtech.
c. What are the similarities and differences in the consolidated balances in parts a and b Why are the balances different? Do you think management has a preference for one set of consolidated balances over the other?