Brand Valuation

&
IFRS 3
in
M&A
Dr Sheeba Kapil
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Regulatory Due Diligence

TRANSACTION STRUCTURE
Companies Act,1956
Income Tax Act,1961
Competition Act,2002
LISTED COMPANIES
SEBI Regulations
Stock Exchange Listing Agreement
CROSS-BORDER TRANSACTIONS
Foreign Exchange Management Act ,1999
FDI policy regulations
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Motives for M&A

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Financial Due Diligence

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Assessing Worth of Target?

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GM
AT&T

Industrial
Age
Firms
ASSETS

New
Age COCA COLA
Firms MICROSOFT
PFIZER

Intelligent
Firms
GOOGLE, AMAZON
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99

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 Sintex Industries Ltd.

Its 2005 annual report has a note that states:
"In the year 2000-01, Sintex brand owned by the
company had been valued by Deloitte Haskins &
Sells, at a value as at the beginning of that year.
The value has been accounted for in the books by
debiting the Brand Value shown under the Fixed
Assets and by creating Brand Valuation Reserve
shown under Reserves and Surplus."
The amount involved was Rs 165 crore.

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 Emami Ltd stated in its 2005 annual report

that intangible assets had been valued as
on March 31, 2005 by Ernst & Young at Rs
423 crore. This included Rs 265 crore for
brands. "Based on the said valuation, the
company's brands were accounted for in
the books of accounts in the year 19992000. The resulting amount was credited
to Revaluation Reserve," states Emami. 15

 Kitply's annual report of 2004-2005 spoke

of brand valuation done in June 2000 by
Ernst & Young. "This has resulted in an
increase in the book value of the brand by
Rs 127.6 cr which was credited to
Revaluation Reserve Account in that year,"
it states.

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 Ratan Tata, the head of IHCL (the Indian

Hotels Company) which owns the Taj
group of hotels disclosed that Taj group
has brand value of Rs 4000 crore in 2008.

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 Vijay Mallya convinced conservative, SBI

to accept the Kingfisher airline brand
registered separately from its beer and
wine brands as collateral to raise Rs
2,000 crore in debt
LT Foods (earlier called LT Overseas)
used its Daawat brand of packaged rice
as collateral to raise debt for its $50 Mn
(Rs 200 crore) acquisition of US-based
rice firm Kusha Inc.
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Valuation methods

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MILLWARD BROWN

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IFRS 3-Std on Actg treatment of Goodwill

Business combinations (except JVs)

Goodwill
is an asset acquired post acquisition and
is initially measured as the excess of the cost of the
business combination over the acquirer's share of the
net fair values of the acquiree's identifiable assets,
liabilities and contingent liabilities. [IFRS 3.51]
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 GOODWILL- Not reported as single asset

GOODWILL has to be allocated to
different classes of IA
BRAND
OTHERS-patent, copyright, license,
franchise etc.

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 IFRS 3 Prohibits amortization of goodwill

Instead Goodwill tested for Impairment
annually in accordance with IAS 36
Goodwill recorded at cost less impairment
charges
Report acquired intangibles separately in B/S

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 all identifiable intangible assets (apt from

goodwill) are recorded at FV
Separately identifiable
Controlled by entity & Future CFs
Trademarks, internet domain name, brand
Royalty, franchise
Patented techno, software
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Impairment
Step 1: Compare FV of asset with its BV
When FV > BV no impairment
When FV < BV impairment of goodwill/IA
Step 2: compare implied FV with BV
Allocate the loss to the unit

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Challenges
Uniform BV method
Valuing acquired as well as self generated
brands

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