|Waddell & Reed Financial (WDR) deal appears closer |
Looks like the long awaited deal for Waddell & Reed Financial, Inc. (WDR) gets closer as the FASB rule changes will go into effect at the end of June.
After five years of deliberations, the Financial Accounting Standard Board, or FASB, has eliminated the pooling-of-interests method of accounting. Companies widely used the method when merging with another institution. Under pooling, the companies combined the book value of their assets. That was more favorable than purchase accounting, where the amount paid above the book value of a company is treated as goodwill. Goodwill must be written off, or amortized, for as long as 40 years, a drag on earnings.
Pooling will be eliminated on June 30. Effective Jan. 1, goodwill expenses will no longer be amortized.
FASB has decided that acquisitions will be subject to an "impairment approach." That means a large chunk of intangible expenses will be eliminated, resulting in a boost to Generally Accepted Accounting Principles, or GAAP, earnings.
The psychological perception of applying current price-to-earnings ratios to higher future GAAP earnings will results in higher stock prices.