Overview
A $5B publicly-traded media company engaged DLC to recapitalize existing shareholder equity during an $8.5B buyout transitioning the company into employee holding through an employee stock ownership plan (ESOP).
Project Background
The DLC team led research and documentation of the appropriate accounting channels for the transaction by studying accounting pronouncements, acquisition guides, recapitalizations and ESOPs. Through their research, the DLC team met additional challenges as they discovered:
- Private following the transaction
- A significant debt required the company to prepare periodic filings with the SEC following the transaction, including 10-Q’s and 10-K’s
- The company was being acquired and merged into a subsidiary of the ESOP, creating a presumption of acquisition requiring push-down accounting that needed to be overcome
The DLC Approach
The company consulted with its external auditors who provided suggestions on a number of potentially applicable accounting standards and SEC staff accounting bulletins to consider in its documentation of the transaction. The DLC consultant considered this accounting guidance and applied it appropriately to the particular facts and circumstances surrounding the transaction. The end result was a comprehensive accounting conclusions document that outlined each of the steps in the transaction and how the accounting guidance applied to each step.
DLC Executed
- Research and documentation of accounting assessments to achieve recapitalization
- A strategy to overcome a presumption of acquisition requiring push-down accounting
- Preparation of pro forma financial statements, which led to shareholder approval and security of funds to close the buyout transaction
The Results
Acting as technical accounting experts, DLC Consultants directed their partner’s management team with a strategy to overcome the presumption that the transaction was an acquisition requiring push-down accounting at fair value.
Through clear documentation, DLC was able to demonstrate that the transaction should be accounted for as a leveraged recapitalization. As a result, the company was able to maintain its historical cost basis in its financial statements following the buyout.
DLC further utilized the accounting conclusions to assist the company in preparing a number of pro forma financial statements outlining the steps leading up to leveraged recapitalization. These pro forma financial statements helped obtain shareholder approval and helped secure the necessary funds to close the transaction.
