Running Head: MULTINATIONAL ACQUISITION 1

Multinational Acquisition
John Simpson
Professor James Wright
Advanced Accounting 401
May 26th, 2012








MULTINATIONAL ACQUISITION 2

Multinational Acquisition
Briefly describe the acquisition you have selected
The Company that I have chosen is Monsanto who is a relatively new company. While
they share the name and history of a company that was founded in 1901, todays company is
focused on agriculture and supporting farmers around the world in their mission to produce more
while conserving more. They are an agricultural company. In 2005 Monsanto acquires Seminis,
a global leader in the vegetable and fruit seed industry. Seminis supplies more than 3,500 seed
varieties to commercial fruit and vegetable growers, dealers, distributors and wholesalers in more
than 150 countries around the world. The company is headquartered in Oxnard, California and
will operate as a wholly-owned subsidiary of Monsanto. They are estimated to have control of
forty percent of the U.S. vegetable seed market and twenty percent of the world market
supplying the genetics for fifty five percent of the lettuce on U.S. supermarket shelves, seventy
five percent of the tomatoes, and eighty five percent of the peppers, with strong holdings in beans,
cucumbers, squash, melons, broccoli, cabbage, spinach and peas. The company's biggest
revenue source comes from tomato and peppers seeds, followed by cucumbers and beans.
Analyze the accounting requirements for the business combination and discuss challenges
in preparing the financial statements for the consolidation of subsidiaries on the date of
acquisition.
The consolidated financial statements are presented in accordance with accounting
principles generally accepted in the United States. These statements pertain to Monsanto and its
controlled subsidiaries. Investments in other companies over which Monsanto has the ability to
exercise significant influence (generally through an ownership interest greater than twenty
percent) are included in the other assets item in the Statement of Consolidated Financial Position.
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Arrangements with other business enterprises are also evaluated and those in which Monsanto is
determined to have controlling financial interest are consolidated. For all fiscal year 2005, the
business operations and employees of the acquired entities were added into the Seeds and
Genomics segment results upon acquisition. These acquisitions were accounted for as purchase
transactions, and accordingly, the assets and liabilities of the acquired entities were recorded at
their estimated fair values at the dates of the acquisitions. The historical financial information
for Seminis includes charges of approximately $1 million and $32 million in the three months
and nine months ended May 31, 2004, respectively, related to one-time legal and professional
fees and other costs directly attributable to a prior acquisition transaction. The historical
financial information for Seminis also includes nonrecurring costs under the previous ownership
structure of $3 million and $2 million for the three months ended May 31, 2005 and 2004,
respectively, and $8 million and $9 million for the nine months ended May 31, 2005 and 2004,
respectively. In addition, interest costs related to Seminis debt have not been removed from the
historical Seminis results; however, as discussed above, Seminis debt of $495 million, with a
weighted average interest rate of approximately 10%, was repaid subsequent to the acquisition
date, while interest expense on commercial paper issued to fund repayments of the debt is at an
interest rate of approximately 3%. (Securities Exchange Commmission Form 10Q, 2005) The
following financial statement shows the restructuring charges that recorded in the Statement of
Consolidated Operations.







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Restructuring charges were recorded in the Statement of Consolidated Operations as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
-------------------------- ------------------------
(Dollars in millions) 2005 2004 2005 2004
---------------------------------------------------------------------------------------------------------------------
Cost of Goods Sold $-- $(2) $-- $(19)
Impairment of Goodwill -- -- -- (69)
Restructuring Charges -- Net (1, 2) -- (9) (8) (66)
---------------------------------------------------------------------------------------------------------------------
Loss from Continuing Operations before Income Taxes -- (11) (8) (154)
Income Tax Benefit (3) -- 4 21 28
---------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations -- (7) 13 (126)
Income (Loss) from Operations of Discontinued
Businesses (4) -- 25 -- (9)
Income Tax Benefit -- -- -- 10
---------------------------------------------------------------------------------------------------------------------
Income on Discontinued Operations -- 25 -- 1
---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $-- $18 $13 $(125)

(1) The $8 million of restructuring charges for the nine months ended May 31, 2005, was split
by segment as follows: $7 million in the Seeds and Genomics segment and $1million in the
Agricultural Productivity segment.
(2) The restructuring charges for the three months and nine months ended May 31, 2004, were
offset by $4 million and $6 million, respectively, in restructuring related to the 2000
restructuring plan.
(3) The $21 million of income tax benefit for the nine months ended May 31, 2005, includes $20
million related to tax losses incurred on the sale of the European wheat and barley business. See
below for further discussion.
(4) The three months and nine months ended May 31, 2004, contain restructuring charges
related to discontinued businesses (see Note 18 Discontinued Operations). These restructuring
charges were recorded in discontinued Operations.



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Evaluate the amount of goodwill or other intangible assets derived from the transaction
and explain whether or not you support that this value was created as a result of the
business combination.
Monsanto follows the guidance of the Business Combinations topic of the ASC, in
recording the goodwill arising from a business combination as the excess of purchase price and
related costs over the fair value of identifiable assets acquired and liabilities assumed. Under the
Intangibles goodwill and other topic of the ASC, goodwill is not amortized and is subject to
annual impairment tests. A fair-value-based test is applied at the reporting unit level, which is
generally at or one level below the operating segment level. The test compares the fair value of
the companys reporting units to the carrying value of those reporting units and requires various
judgments and estimates. The fair value of goodwill is determined using an estimate of future
cash flows of the reporting unit and a risk-adjusted discount rate to compute a net present value
of future cash flows. An adjustment to goodwill will be recorded for any goodwill that is
determined to be impaired which is measured as the excess of the carrying amount of goodwill
over the fair values of recognized and unrecognized assets and liabilities of the reporting unit. In
connection with the integration, in September 2005, Monsanto and the chief executive officer of
Seminis agreed that he would assist in the integration before resigning by Dec 31, 2005.
Monsanto had to assess whether the termination of his employment would accelerate the timing
of any contingent payment discussed. If any payment was made, it would be reflected as an
increase in the purchase price of Seminis, which would increase goodwill and it would require a
use of cash by Monsanto. (Securities Exchange Commission Form 10K, 2005) I do agree that
whether the payment is made or not goodwill would be created as a result of the business
combination. Other intangible assets encompass intangible assets such as enabling processes and
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data libraries necessary to support the integrated genomics and biotechnology platforms. These
intangible assets have alternative future uses and are amortized over useful lives ranging from
three to 10 years. The useful lives of acquired intellectual property are determined based on
consideration of several factors including the nature of the asset, the expected use, the length of
licensing agreement or patent and the period over which benefits are expected to be received
from the use of the asset. Monsanto has a broad portfolio of trademarks and patents, including a
trademark for Roundup (for herbicide products).
Analyze special issues related to business consolidations including changes in ownership,
insolvency, liquidation, and reorganization resulting from the acquisition you selected.
As of the effective time of the merger, outstanding shares of common stock of Seminis
will be converted into the right to receive $10.52 per share. Outstanding options, restricted stock
units, co-investment rights and warrants will be converted into the right to receive an amount in
cash equal to the common stock cash price per share for the number of shares into which they are
convertible, less their conversion price, if any. Marinet Investments, LLC, a current holder of
co-investment rights in Seminis which are being terminated upon the consummation of the
merger, may elect prior to closing to reduce the merger consideration it would otherwise be
entitled to receive by $50 million in exchange for a performance based contingent value right to
receive up to $125 million based on the achievement of certain cumulative net sales targets over
the thirty-six month period ending September 30, 2007. As contemplated by the Merger
Agreement, each holder of Seminis common stock and warrants entered into a support agreement
agreeing, among other things, to vote in favor of approval of the Merger Agreement and the
merger. The holders of Seminis common stock approved the Merger Agreement by written
consent on January 22, 2005. The Merger Agreement was subject to customary terms and
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conditions, including regulatory approvals. The transaction was completed during the first half of
2005.
For the company you selected, identify the key areas of difference for the acquisition
reporting if IFRS was used instead of US GAAP and if the difference would be material to
the profitability of the combined entity.
Some of the key areas of difference reporting with IFRS would be the presentations of
ongoing earnings per share (EPS) and free cash flow are not intended to replace net income, cash
flows, financial position or comprehensive income, and they are not measures of financial
performance as determined in accordance with Generally Accepted Accounting Principles
(GAAP) in the United States. Reconciliation of EPS to ongoing EPS: Ongoing EPS is calculated
excluding certain after-tax items which Monsanto does not consider part of ongoing operations.
Reconciliation of free cash flow: Free cash flow represents the total of cash flows from
operations and investing activities. With respect to the projected free cash flow guidance for
2005, Monsanto does not include any estimates or projections of net cash provided by (required)
by financing activities because in order to prepare any such estimate or projection, Monsanto
would need to rely on market factors and conditions that are outside of its control.




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References
(2005). Securities Exchange Commission Form 10K. St. Louis: Security Exchange Commission.
(2005). Securities Exchange Commmission Form 10Q. St. Louis.