M&A Fair Value Adjustment
Hi all,
I was wondering if someone would be able yo answer this question. FCX acquired MMMR and PXP in December of last year, and upon close of the transaction, FCX wrote up the assumed debt by approximately 700 million. So on FCX balance sheet, the values of the assumed debt figures reflect the fair value adjustment..
Any ideas why.? Is this just part of the purchase price allocation process where you write-up all assets and liabilities? FCX also stated that the fair value adjustment will be amortized which will reduce interest expense....
Thanks for the help!
Thats really an interesting question. I would also be interested in an answer.
But do u really think its directly related to a PPA? as far as i understand, you dont do fair value adjustments in the PPA but record the excess of the purchase Price and the recognized assets as Goodwill/Badwill (as Long as the target will be consolidated into the acquirers Balance sheet). Then for every further financial year, the Goodwill is subject of an impairment test.
Regarding the debt, I think its recorded at fair value. If the carrying value of the debt that was acquired is less than the fair market value (which could happen e.g.when interest rates fall), then, as far as i understand, a fair value adjustment is recognized. This fair value adjustment is then amortized over the lifetime of the debt. Subject to accounting Treatments, the amortization can reduce some of the reported interest rate expense (how exactly im not sure).
I dont Claim anything of what I wrote to be correct, as I already said, I would also be very interested in an answer
PPA is all about fair valuing assets... ^
You FV all the assets and liabilities, and the excess purchase price is goodwill.
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