Advanced Accounting, ACCT 401 Assignment #3 You have been placed on a confidential team. The company you work for, Stripe, Inc., is planning an acquisition and has identified a specific company as the target. The acquisition is expected to expand Stripe's existing markets in the US and internationally. The target company (we'll call it RedCo) has a complimentary product line that will also expand Stripe's markets. The CFO (Pat) hands you Red Co's most recent statement of financial position. Pat supplies the following information Stripe expects to pay $3.4 billion in cash to acquire all of Red Co's outstanding common stock, a premium of nearly 100% over RedCo's current market value. Pat asks you to prepare a pro forma statement of financial position for RedCo immediately following acquisition. You should give your best estimates, and specifically identify the amount of goodwill that will result. Pat notes that the RedCo has about $1.8 billion of intangible assets (in addition to goodwill from a previous acquisition). The acquisition team has evaluated the intangibles and believe the value is actually about $2.6 billion. RedCo has almost $1 billion of long-term debt, all of which is at floating interest rates, currently at the market rate of 3.5%. Pat wishes there was more information to guide you, but there isn't. Since this potential acquisition has not been announced, the company must be careful to not reveal its intentions, so seeking more information is not possible. A glance at the income statement (which is not provided here) shows gross profit at about 35% of sales. Pat concludes: "Good luck, I know you'll do a great job and really help us make a decision." Additional background on the company reveals the following. RedCo a packaged food company that develops, manufactures, markets, sells, and distributes fresh sweet baked goods in the United States. It offers a range of snack cakes, donuts, sweet rolls, breakfast pastries, snack pies, and related products. The company operates in two segments, Sweet Baked Goods and In- Store Bakery. The Sweet Baked Goods segment offers fresh and frozen sweet baked goods and bread products under a variety of brands, as well as store branded products. The In-Store Bakery segment primarily provides branded eclairs, madeleines, brownies, and iced cookies in the bakery section of grocery and club stores. The company was founded in 1919 and is based in Lincoln, Nebraska. REQUIRED: Use Excel (or another spreadsheet, must be a spreadsheet) that shows the starting statement of financial position, adjustments you believe should be made, and the adjusted statement of financial position immediately following the proposed acquisition. Make the final document something you would be proud to give to a CFO. One additional requirement. The purchase price could change, so you must create the spreadsheet so that the purchase price can be easily changed, adjusting statement of financial position. The most recent statement of financial position for RedCo appears on the next page. REDCO Statement of Financial Position As of a recent date dollars in millions $ 285 105 21 27 2 52 24 209 (50) 536 1,853 Cash Accounts receivable, net Inventory (FIFO) Ingredients Finished goods Property, Plant & Equipment Land Building Right of use assets Machinery & Equipment Less, accumulated depreciation Goodwill Intangible assets, net Other noncurrent assets Total Assets Current portion of long-term debt Accounts payable Accrued liabilities Other current liabilities Long-term debt Deferred income tax liabilities Common stock Additional paid-in capital Retained earnings Total Liabilities and Equity 13 $3.072 S 12 69 8 2 975 256 1 649 1,105 $3.077 Advanced Accounting, ACCT 401 Assignment #3 You have been placed on a confidential team. The company you work for, Stripe, Inc., is planning an acquisition and has identified a specific company as the target. The acquisition is expected to expand Stripe's existing markets in the US and internationally. The target company (we'll call it RedCo) has a complimentary product line that will also expand Stripe's markets. The CFO (Pat) hands you Red Co's most recent statement of financial position. Pat supplies the following information Stripe expects to pay $3.4 billion in cash to acquire all of Red Co's outstanding common stock, a premium of nearly 100% over RedCo's current market value. Pat asks you to prepare a pro forma statement of financial position for RedCo immediately following acquisition. You should give your best estimates, and specifically identify the amount of goodwill that will result. Pat notes that the RedCo has about $1.8 billion of intangible assets (in addition to goodwill from a previous acquisition). The acquisition team has evaluated the intangibles and believe the value is actually about $2.6 billion. RedCo has almost $1 billion of long-term debt, all of which is at floating interest rates, currently at the market rate of 3.5%. Pat wishes there was more information to guide you, but there isn't. Since this potential acquisition has not been announced, the company must be careful to not reveal its intentions, so seeking more information is not possible. A glance at the income statement (which is not provided here) shows gross profit at about 35% of sales. Pat concludes: "Good luck, I know you'll do a great job and really help us make a decision." Additional background on the company reveals the following. RedCo a packaged food company that develops, manufactures, markets, sells, and distributes fresh sweet baked goods in the United States. It offers a range of snack cakes, donuts, sweet rolls, breakfast pastries, snack pies, and related products. The company operates in two segments, Sweet Baked Goods and In- Store Bakery. The Sweet Baked Goods segment offers fresh and frozen sweet baked goods and bread products under a variety of brands, as well as store branded products. The In-Store Bakery segment primarily provides branded eclairs, madeleines, brownies, and iced cookies in the bakery section of grocery and club stores. The company was founded in 1919 and is based in Lincoln, Nebraska. REQUIRED: Use Excel (or another spreadsheet, must be a spreadsheet) that shows the starting statement of financial position, adjustments you believe should be made, and the adjusted statement of financial position immediately following the proposed acquisition. Make the final document something you would be proud to give to a CFO. One additional requirement. The purchase price could change, so you must create the spreadsheet so that the purchase price can be easily changed, adjusting statement of financial position. The most recent statement of financial position for RedCo appears on the next page. REDCO Statement of Financial Position As of a recent date dollars in millions $ 285 105 21 27 2 52 24 209 (50) 536 1,853 Cash Accounts receivable, net Inventory (FIFO) Ingredients Finished goods Property, Plant & Equipment Land Building Right of use assets Machinery & Equipment Less, accumulated depreciation Goodwill Intangible assets, net Other noncurrent assets Total Assets Current portion of long-term debt Accounts payable Accrued liabilities Other current liabilities Long-term debt Deferred income tax liabilities Common stock Additional paid-in capital Retained earnings Total Liabilities and Equity 13 $3.072 S 12 69 8 2 975 256 1 649 1,105 $3.077