Executive summary.
On 5th of December 2010 the American giant company in the field of pharmaceuticals announced its intention to acquire the Dutch company crucell which was in which it had already controlled 17.5% at a price of $2.3 billion, which would be a price of 24.75 Euros per share which was a purchase price 58% above the actual closing day price of the share ant thus crucell would have recorded a capital gain per share of 14.36 Euros. The company was to acquire 98.98 % of the issued crucell share. crucell was acquire to be acquired in multiple steps with the period of February 23 up to March 8 in the year 2011. Johnson & Johnson, was to retain all employees of crucell as well retain its headquarter in Leiden in the western of Netherlands.
Johnson and Johnson was established more than one hundred and twenty year ago and its key establishments are:
- Consumer Health Company which rank 06t in the world.
- Medical devices and Diagnostics Company.
- Biologics company which rank 25th in the world.
- Pharmaceutical company which rank 8t i the world.
It reports it financial performances using the accounting principles generally accepted in the United States.
Crucell is Biopharmaceutical Company founded as a small biotech company in the year 1993 under the name introgene is Dutch company which specialised mostly in drug production and particularly vaccines. Its focused on the research and development, production and marketing of vaccines and antibodies against infectious disease all over the world. It has been the largest supplier of vaccine to the UNICEF and developing world.
This was a formal or peaceful acquisition and not a hostile one as there exists a clear frame work of the entire process of takeover which was quoted unconditional by Johnson & Johnson.
Crucell reports its financial statements using the international financial reporting standards (IFRS)
The acquisition of the company was unconditional and it was to be acquired on a cash basis which was to be in multiple steps due to share holders who were not willing to dispose their share at the offered price.
Allocation of the acquisition differential of crucell was to be allocated to the incomes from the activities of the company over a span of the of twenty one years till the acquisition price would be fully recovered the amount of acquisition differential which in the financial statements of the Johnson and Johnson was referred to as goodwill which is obvious the excess of the face value of the captured company to the actual amount paid by the target company in this case the differential amount was $13.34 billion and this was to be amortized over a duration of twenty one years and this is to avoid directing almost all or a large proportion of the company’s revenues toward writing off such a an excess of face value of the company to non revenue generating expense, since such excess value can be taken to be the goodwill of crusell which the Johnson and Johnson offered to pay on top of the face value of the company.
The company one year after acquisition have not recorded any loss since acquisition and motivated by this good progress it went over to takeover sterlimed
The accounting policies that Johnson $ Johnson have adopted is the famous, U.S generally accepted accounting principle (GAAP) in which revenues are considers when earned upon shipment of the commodities to the client and cost recognized when earned and accounted for in the period they were earned or incurred and not when the actual cash flow took place made make estimates and assumptions that affect the amounts reported. As prior to cash flows any shipment credit shipment will be recognised as an asset under the receivable heading while unpaid expenses will be captured under the liabilities heading.
Under this accounting approach actual results may or may not differ from their estimates. The Company believes that the understanding of certain key accounting policies and estimates are essential in achieving more insight into the Company’s operating results and financial condition.
Johnson & Johnson have provide that converting from use of GAAP to IFRS it will be easier for it compare its financial results with other international competitors
Furthermore it insists that IFRS is simpler to use and understand and going by its complex enterprise then such accounting standards would work in the course of simplifying its key financial activities.
Since the company have grown to a multinational status company it would be would be good to adopt an internationally accepted financial reporting standards which will allow for individual evaluation of the performance of each branch in the different countries as well as allow for comparison of their performance.
With its aim for being the leading company in the global market in the health sectors it should adopt such as reporting approach which many of its client and competitors are using.
The impact of acquisition automatically leads to noticeable change in the financial statements of the company in different but related way.
Upon acquiring crucell, Johnson $ john assumed all the assets and financial obligations previously under the custody of crusell and thus this impacted on the balance sheet of the company i the following ways, the assets heading of the company increased with an equal amount as the assets of crucell while the liabilities increased with an equal amount as the liabilities of the acquired company. Therefore the balance sheet figure in the two columns changed upwards.
The reserves or retained earnings are mostly used in such acquisition endeavours and for such it well known that Johnson and Johnson acquired crecell on a cash basis and thus the assuming the obvious possibility that Johnson and Johnson utilised its reserves or retained earnings to take over the target then its reserve amount decreased by the value of amount paid out which was $2.3 billion.
The above information can be ascertained from the balance sheet below:
It would be quite hard to identify the exact monetary impact of the acquisition of the crecell by Johnson and Johnson due to the fact that the information available from the financial statements of the company have been consolidated but a more satisfying qualitative information can be used to show how such a process would impact to the three key financial statements of the capturing company.
This purchase had a sounding impact on the income statements of Johnson and Johnson, since the crecell continued with its responsibilities under the control Johnson and Johnson and thus all revenues generated between the time of takeover were being accounted for in the book of Johnson and Johnson and thus its revenues grew, more its costs of operations increased since anew business which had expenses had come over board.
Its creditors increased as well as debtors since not all transaction happened on cash basis and this impacted on its income statement.; This is as illustrated from the consolidated income statement of Johnson & Johnson company:
On the category of cash flow statements, the acquisition had a noticeable impact; actual cash outflow which went to purchase the company was recorder under the investing activities category as a cash outflow and all revenues gained by the taken over company from the time of capturing were recorded as cash inflow depending on whether they were under operating, financing or investing. In summary any cash inflow due to the taken company was recognized as cash inflow to the business and any cash outflow impacted in similar way.
The cash flow is as illustrated below:
As quoted in the financial report of Johnson and Johnson the above financial statement er for the company and its subsidiaries and since crecell had since been acquired by Johnson and john it ceased to exist as a separate entity and thus it could not have published its own financial information unless with consent from Johnson & Johnson. “According to PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Johnson & Johnson and its subsidiaries (the Company).Intercompany accounts and transactions are eliminated”
The information that is revealed in the financial reported of Johnson and Johnson is that pertaining to the actual amount paid out as well as that paid out per share with together with the window period with which the shareholders of crecell should surrender their share for purchase by Johnson and Johnson. The most information as quoted from the company’s financial report is that “During the fiscal first quarter of 2011, the Company acquired substantially all of the outstanding equity of Crucell N.V. that it did not already own. Crucell is a global biopharmaceutical company focused on the research and development, production and marketing of vaccines and antibodies against infectious disease worldwide. The net purchase price of $2.0 billion was primarily recorded as non-amortizable intangible assets for $1.0 billion, amortizable intangible assets for $0.7 billion and goodwill for $0.5 billion. During the fiscal second quarter of 2012, the Company recorded a charge of $0.5 billion for the intangible asset write-down and $0.4 billion for the impairment of the in-process research and development related to the Crucell business”. This is not satisfactorily informing to an outsider who would much want to know how the whole process of acquisition went on further more the financial reports of Johnson &john does not contains any information pertaining the income from crecell since all the figure have been consolidated in the statements of Johnson & Johnson.since this is a business undertaking one thing known with certainty is that Johnson & Johnson has been exposed to external flow of currencies and particularly in a superior currency, the Euro and going by the exchange rates of Euros to dollars the company is enjoying a significant amount of capital gain.
The key reasons for Johnson & Johnson to acquire the Dutch company are to embrace its resposilities of production and supplying vaccines the entire world as well as increase its biopharmaceutical influence all over the world.
Another reason as to why Johnson & Johnson took over crecell is to spread its influence in Europe and especially in countries under the Euro currency area where its potential to grow are high as there ere little restrictions of going across the borders of the member states and thus its cost of operation in Europe would be relatively compared to other regions in the world.
One would wonder what allowed the crecell to be taken over by Johnson and Johnson, reason for these include that the company offered a relatively likeable price per share which was far much higher by a percentage of 58% of the market value of the share and thus the company could not have resisted the offer, further more the company was shareholder to the crecell and owning 17% of the stock and thus was a trusted legal member of the company.
Another reason to allow for the capture is the fact the employees for crecell would retain their posts as well as ensuring that the company’s headquarters would remain in Netherlands and finally that takeover was unconditional since it was a free will take over and since it received a backing of the shareholders to have their company bought by another then the deal was sealed.
The benefit accruing to the parent country would not be moved since the crecell would still remain in the same country and thus benefits such tax to the government would be retained and may be increased since the absorbing company would be having a strategy of increasing its capacity which would lead to a similar increase to the government.
There is high prospects of growth in the capturing company since it has gained new grounds where its possibilities of growth are infinitely promising, furthermore the company will increase its diversification since it has continued to acquire different companies doing different activities in a similar field and thus in the long run Johnson & Johnson might end up controlling the pharmaceutical industry.
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Johnson &Johnson website, acquisition of crecell. accessed 1 st dec 2012.
About jnj.accessed Dec 2012..
