M&A

Writing Up Your Writedowns

OfficeMax, H.B. Fuller, Regions Financial, and United Rentals cite impairment as values decline — sometimes on M&A deterioration — and such filings...
Stephen TaubJanuary 21, 2009

Companies continue being forced to write down the deterioration of asset values, including those reflecting acquisitions made in the last few years of higher valuations. This week’s additions: H.B. Fuller Co., OfficeMax, UnitedRentals Inc., and Regions Financial.

It is a trend that is likely to continue until an economic rebound occurs.

On Tuesday, OfficeMax said in a regulatory filing that it was taking an additional $105 million in impairment charges to reduce the carrying value of goodwill and trade names. The noncash charges will decrease the carrying value of goodwill in the contract reporting unit by about $100 million and the carrying value of the trade name recorded in its retail reporting unit by about $5 million. The charges — part of a two-step process — are in addition to the noncash impairment charge recognized in the second quarter of 2008 of $935.3 million pre-tax, and $909.3 million after-tax.

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“In addition, management continues to monitor the relationship of the company’s market capitalization to its book value,” the office products retailer said. “Since the second quarter, economic conditions have weakened, especially in the retail industry.”

H.B. Fuller Co. said that its fourth-quarter results include pretax, noncash asset impairment charges of $86.9 million, or $53.5 million after-tax. On a pretax basis, $85 million of the noncash impairment charges reflect the writeoff of goodwill in the specialty construction component of its North America business segment. Almost all this goodwill is related to the company’s 2006 acquisition of Roanoke Companies Group Inc. Roanoke makes “pre-mix” grouts, mortars, and other products used for the installation of flooring systems.

The total amount of goodwill associated with the specialty construction business component was $99 million at the end of the third quarter 2008, Fuller noted. Therefore, any subsequently determined impairment would not exceed $14 million, it added. In addition, pretax noncash impairment charges of $1.9 million were also taken during the quarter on two of the company’s venture investments. Fuller warned that the indicated goodwill impairment charge is an estimate. The final charge will be determined during the first quarter of 2009.

Among the larger cases of goodwill impairment this week, Regions Financial reported that it would take a noncash charge of $6 billion, noting that the estimated fair value of Regions’ banking reporting unit was less than its book value. Regulatory and tangible capital ratios were unaffected by this adjustment, however.

Regions Financial is participating in the U.S. Treasury’s Capital Purchase Program, having issued $3.5 billion of senior perpetual preferred stock and warrants to the government. A company spokesman told Reuters that the value of its banking and Treasury operations had fallen below book value, requiring “the vast majority” of the $6 billion writedown. “We were an acquisitive organization,” Deighton said.

Regions currently has $146.2 billion of assets and 1,900 branches in 16 U.S. states in the South, Midwest, and Texas, thanks in large part to its $5.9 billion merger with Union Planters Corp in 2004 and $10 billion purchase of AmSouth Bancorp in 2006.

And United Rentals Inc. said that it expects to record a noncash goodwill impairment charge in the fourth quarter of 2008 of about $1.1 billion. Substantially all the impairment charge relate to goodwill arising out of acquisitions made by the company between 1997 and 2000. “The impairment charge will not result in any cash expenditures and will not affect the company’s cash position, cash flow from operating activities, free cash flow, liquidity position or availability under its credit facilities,” the equipment rental giant said.

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