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Notes to the Consolidated Financial Statements

29. Business combinations

On 4 May 2007, the Group announced that it had agreed to acquire Harcourt Assessment, a leading test provider, and Harcourt Education International, publisher of textbooks and online materials. The Harcourt Education International acquisition has closed in several stages, following regulatory reviews of the relevant authorities where required. The acquisition of Harcourt Assessment completed on 30 January 2008 and is therefore excluded from the numbers below (see note 36).

On 31 July 2007, the Group acquired eCollege, a leader in the US online distance learning market. In addition, several other businesses were acquired in the current year, mainly within the FT Group. None of these other acquisitions were individually material to the Group. The largest single acquisition in 2006 was Mergermarket.

The provisional assets and liabilities arising from acquisitions are as follows:

All figures in millions 2007 2006
Notes Harcourt Fair value eCollege Fair value Other Fair value Total Fair value Total Fair value
Property, plant and equipment 10 6 5 11 13
Intangible assets 11 81 100 16 197 156
Intangible assets – Pre-publication 17 16 2 18 4
Inventories 15 15 14
Trade and other receivables 12 13 3 28 24
Cash and cash equivalents 28
Trade and other liabilities (23) (12) (3) (38) (52)
Financial liabilities – Borrowings (1) (1) (3)
Current income tax 2 2 4
Net deferred income tax liabilities 13 (21) (24) (45) (26)
Retirement benefit obligations 24 (2)
Provisions for other liabilities and charges 22 (1) (1) (2) (3)
Equity minority interest (9)
Net assets acquired at fair value 87 85 15 187 144
Goodwill 11 68 181 55 304 246
Total 155 266 70 491 390
Satisfied by:
Cash (155) (266) (47) (468) (382)
Deferred consideration (12) (12) (17)
Net prior year adjustments (11) (11) 9
Total consideration (155) (266) (70) (491) (390)
Carrying value of net assets acquired 25 15 1 41 48
Fair value adjustments 62 70 14 146 96
Fair value to the Group 87 85 15 187 144

The goodwill arising on the acquisition of Harcourt and eCollege results from substantial cost and revenue synergies and from benefits that cannot be separately recognised, such as the assembled workforce.

The fair value adjustments relating to the acquisition of Harcourt and eCollege are provisional and will be finalised during 2008. They include the valuation of intangible assets and the related deferred tax effect. Prior year adjustments relate to the finalisation of fair value adjustments and increases in deferred consideration relating to Mergermarket.

Harcourt

All figures in millions Carrying
value
Fair
value adjs
Provisional
fair value
Property, plant and equipment 6 6
Intangible assets 81 81
Intangible assets – Pre-publication 14 2 16
Inventories 15 15
Trade and other receivables 12 12
Trade and other liabilities (23) (23)
Current income tax 2 2
Net deferred income tax liabilities (21) (21)
Provisions for other liabilities and charges (1) (1)
Net assets acquired at fair value 25 62 87
Goodwill 68
Total 155

eCollege

All figures in millions Carrying
value
Fair
value adjs
Provisional
fair value
Property, plant and equipment 5 5
Intangible assets 2 98 100
Intangible assets – Pre-publication 2 2
Trade and other receivables 13 13
Trade and other liabilities (10) (2) (12)
Financial liabilities – Borrowings (1) (1)
Current income tax 2 2
Net deferred income tax assets/(liabilities) 2 (26) (24)
Net assets acquired at fair value 15 70 85
Goodwill 181
Total 266

Net cash outflow on acquisition:

All figures in millions 2007 2006
Cash – Current year acquisitions (468) (382)
Deferred payments for prior year acquisitions and other items (4) (9)
Cash and cash equivalents acquired 28
Cash outflow on acquisition (472) (363)

Harcourt contributed 71m of sales and 7m to the Group’s profit before tax between the date of acquisition and the balance sheet date. eCollege contributed 15m of sales and 4m to the Group’s profit before tax between the date of acquisition and the balance sheet date. Other businesses acquired contributed 4m to the Group’s sales and 2m to the Group’s profit before tax between the date of acquisition and the balance sheet date.

If the acquisitions had been completed on 1 January 2007, the Group estimates that sales for the period would have been 4,307m and profit before tax would have been 479m.

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