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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.