ACCY 410 Columbia University Financial Performance Tesla Company Case Study: Accounting Answers 2021
ACCY 410 Columbia University Financial Performance Tesla Company Case Study
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M&A Transaction Analysis Project Instructions
ACCY 410?Advanced Financial Reporting
The objective of this project is to evaluate a mergers and acquisitions (M&A) transaction
consummated (i.e., closed) between January 1, 2005 and December 31, 2017. I require projects
to analyze transactions in this time period because it allows students to study relatively recent
transactions and provides an opportunity to evaluate the pre- and post-transaction performance of
the significant parties in the transaction. You must complete this project as a member of a group.
I. What is an M&A Transaction?
In general, I take a very broad, deal-maker view of M&A transactions. Included in this set are
traditional business combination transactions like stock and asset acquisitions of other business
entities. Important tip: when selecting a transaction, research and confirm your ability to
access robust public financial statement and other information about both entities involved.
Both entities should be public companies so that you can access robust stock prices, financial
performance data, and accounting disclosure information about the entities and the specific
transaction. Also confirm that the transaction is significant enough to the acquirer to warrant robust
financial statement footnote disclosure about the deal.
II. Outline of the requirements and suggestion for the format of the Final Report
Briefly describe the firms involved in the M&A transaction. Summarize the advertised motive(s)
for the transaction (examples: diversification, synergy, reduced operating costs, industry
consolidation trends, etc.). Articles in the financial press (The Wall Street Journal, Business Week,
Forbes, etc.) concerning the transaction should reveal possible motives of the parent company
management. In addition, Management?s Discussion and Analysis in the acquirer?s SEC filings
(e.g., SEC Forms 10-K & 10-Q) could reveal (albeit potentially biased) motives. In laying out the
motives for the transaction, you should be considering ways that you will test the assertions made
by management (and the financial press).
2. Stock market reaction
I expect you to analyze the stock-market reaction to the M&A transaction. You should conduct
your analysis around the key ?event dates? on which investors received new information regarding
the likelihood (and/or the proposed structure) of the transaction. At a minimum, you should identify
the most important event date (i.e., you can get away with including only one event date in your
report). You should include relevant stock market information for the publicly listed parties in the
transaction. Did stockholders appear to endorse (disapprove of) the transaction? Was the stockmarket return typical for the parent and target? Daily stock prices and stock returns of both the
parent (bidder) and subsidiary (target) should be presented in an appendix. The number of days
examined is your decision (but between 5 and 60 days is probably appropriate). And don?t forget,
a picture (i.e., graph) is worth a thousand words!
3. Accounting Analysis
Describe the entities and accounting used to consummate the M&A transaction. How was the
transaction financed (i.e., cash, debt, stock, or some combination, contingent consideration, etc.).
Which company was the acquirer, and why? What was the approximate Acquisition Accounting
Premium (AAP)? How was it allocated? Was the transaction taxable or not, and what were the
consequences of that? What effect did the transaction have on the financial statements (on the
business combination date and subsequent to the business combination date)? Please be sure to
provide enough detail so that the major operating and financial assets and liabilities (and changes
therein) are summarized in the transaction detail and discussion. Also, describe the accounting for
major assets acquired and liabilities assumed subsequent to the business combination date.
Also, highlight the nature of the most significant fair value adjustments to the acquiree?s accounts
that were recorded, explain why those occurred and how these adjustments will impact future
financial statements (i.e., amortization periods and amounts). You must study the financial
statement footnote disclosures about the transaction and compare the fair value allocation to the
book values previously recorded by the acquired entity to accomplish this analysis.
(Another tip: when selecting a transaction, make sure the transaction was significant enough
to the acquiring company to warrant robust footnote disclosure for the
acquisition/divestiture. Also be sure to confirm that you can access financial statements for
both entities involved in the transaction.)
4. Financial Performance
The text of the paper should summarize the extent to which the M&A transaction achieved its
advertised objectives and support this conclusion with data. Did the post-transaction entity achieve
the stated objectives of the M&A transaction? Did the transaction affect performance in the way
management predicted? A successful transaction should improve the performance of the combined
companies, over what presumably would have been achieved separately. This ?alternate universe?
comparison is often the most challenging part of the analysis.
Part of the analysis is to understand the previous performance trends of the acquirer and the
standalone acquiree companies. For subsequent performance, consider analyzing relevant segmentlevel financial data (available in the segment footnote) for the consolidated group performance
data, especially if the company you are analyzing is a diversified conglomerate. To properly use
segment data for this purpose, you must analyze the company?s disclosures about how it allocated
the acquisition to its segments.
Often, benchmark data is very useful when trying to draw a conclusion about the relative success
of a deal?s subsequent performance. Benchmarks could include previous performance trends by the
same company (or business segment), or comparison to industry data, for example.
When analyzing subsequent financial performance data, keep in mind that an acquisition naturally
increases the consolidated net assets and generally net income, because the consolidated group
becomes bigger. A more relevant and interesting question, for example, is whether the net income
increased sufficiently to justify the amount that was invested in the acquisition. So, for example,
measures such as return on assets or return on equity are more relevant than simply measuring the
increase in net assets or increased earnings.
The number (and types) of ratios examined and the number of years included in the analysis are
your decision. 1 I want you to think critically and creatively about how to measure and analyze the
success of your transaction. You might need to restate some of the financial information if the firm
adopted unusual accounting policies or had unusual one-time items. Also, you should check
subsequent financial statements to check to see if there have been any goodwill or other impairment
charges relevant to the acquisition.
There are several sources for ratios (e.g., any good finance or financial-statement-analysis textbook). You
should consult these resources to provide examples of the types of ratios you include in your analysis.
Note: The worst thing you could do is to blindly include a handful of ratios in your discussion
without considering the specific motives and industries of the companies.2 I strongly suggest that
you target your analysis to the advertised motives of the transaction (see Section II.1. above).
Based on your analysis, briefly summarize your conclusions. Some questions to consider include
(but are not limited to) the following: Was this transaction ?successful?? Did the controlling
company meet their objectives? Were other stakeholders (e.g., labor) affected by the transaction?
Are there limitations to your analysis? This is where you let it all hang out: it is your opportunity
to tie up all of the loose ends and to provide a compelling conclusion to your analysis.
III. Other Details
1. Critical dates
TAP Group Survey: Please complete the survey on Compass by 11:59
pm on February 1, 2021. On February 3, I will assign groups based on the
Transaction Selection Due (5 points): By the end of the day (11:59 pm),
one member of each group should email me its members? names and
describes the transaction it wishes to investigate. Pay special attention to
the deal finalization date; it must conform to the range of dates listed in
the first sentence on the preceding page. The transaction selected cannot
be changed after the submission of the first phase of the report on
TAP ? Phase 1 Report Due (25 points): By the end of the day (11:59 pm),
maximum 3 pages, conforming to format instructions in Section 6. Submit
this report in Compass.
This report represents (1) a first draft of the ?Overview? section and (2) an
outline of the remaining analysis that you expect to be included in your
final report. At a minimum, the Phase 1 Report should describe the
transaction and fully discuss the transaction motives (i.e., Section 1 stuff),
and clearly outline the specific, detailed analyses that will be included in
Sections 2, 3 & 4 of the final report. Be sure to verify that the following
information exists for your transaction (1) Stock market prices for the
acquirer and the acquiree, and (2) Purchase price allocation (PPA).
Final Written Report Due (65 points): For all groups, online submission
of your report and presentation slides by the end of the day (11:59 pm).
May 3 & 5,
Project Presentations (25 points) and Q&A (5 points): During the week
before presentations, I will provide a project presentation schedule.
A great way to learn about the performance and financial-condition ratios that are important in specific
industries is to review old analyst reports for companies in those industries.
2. Team reports
The report will be prepared in teams. Teams should be comprised of 5 students.
I expect all team members to contribute to the project. Although you can contract with your
teammates to allocate the workload in any way you choose, all team members should be exposed
to planning and executing all aspects of the report (i.e., each team member should be able to
knowledgeably answer any question during the presentation). To check whether all members within
a team ?fairly? contributed to the project, I sometimes solicit peer evaluations at the end of the
project. If there is evidence of ?shirking? by an individual, this will be reflected in a lower grade
for class participation (i.e., between one and 50 points will be deducted from the
?Collegiality/Citizenship? category of points in the course). I expect that this will not be an issue
for this project.
3. Research process
One of the objectives of this project is to give students the opportunity to research a finance-andaccounting-related question. Your report must be based on your own original research. Note that
using other individuals? similar projects completed in other courses is ?unauthorized aid.?
The only exception is that you may refer to the sample projects that I will post on Compass. 3
4. Choice of M&A transaction
Two good sources for identifying M&A transactions are the quarterly periodical, Mergers and
Acquisitions and The Wall Street Journal Index (you can search under the heading, ?mergers and
acquisitions?). In addition, I have compiled an Excel spreadsheet containing a list of the largest
M&A transactions during the period 2005-2017. You can find the spreadsheets in the TAP
resources folder on Compass.
Please note: You may not choose the following transactions: (1) P&G-Gillette, (2) AnthemWellPoint, (3) Walt Disney ? Marvel, (4) Walt Disney ? Lucas Films, (5) Walt Disney ? Pixar, (6)
Bank of America ? Merrill Lynch, (7) Google ? Motorola for your project.
I encourage you to choose firms/industries in which you are interested from a personal or
professional viewpoint. Also, be sure that the firms have stock prices available during the time
period leading to the announcement of the M&A transaction and the parent company has
financial statement information available before and after the M&A transaction (see the next
section for data sources). The number one reason that students have a less-than-great time on this
project is because they select companies that are too small (not enough juicy data?). Of course,
another pitfall occurs when students select big companies that have lots of data, but the analyzed
transaction involves the exchange of a relatively small division or set of operating assets. In other
words, use caution in selecting the transaction!
These sample projects are very solid attempts, but are by no means perfect and could stand some
improvement. So, if you consult the sample reports, you should be sure to use your own individual
perspective in developing analysis approaches, writing, and formatting tables, charts, exhibits and other
General information about the M&A transaction and the firms: There are several sources you
can use to identify and access firm-specific financial press articles. Both Factiva and Lexis/Nexis
are convenient, online, full-text databases that cover news and other firm-specific information.
Stock price information: You can use the CRSP database at the Wharton Research Data Service
(WRDS) web site for stock price and volume information. 4 You can also use the resources
available in the Margolis Information Lab in the BIF atrium.
Financial statement information: There are several sources of firm specific financial statement
information including the SEC Edgar database 5, the ?Annual Report Gallery? site 6, Lexis/Nexis
and Thompson Research?s Compact D (the ?SEC? tab under Compact D), Mergent Online 7, or
Capital IQ (described in the syllabus), through the acquiring company?s web page, and, of course,
through direct contact with the firm. The SEC filings that are most relevant to your project are the
Forms 10-K, 10-Q, 8-K and various flavors of registration statements (i.e., a SEC Form S-4
registration of securities used in M&A).
Industry information: You have access to numerous online databases that provide industrytargeted information and within-industry financial comparisons, including Standard and Poor?s
NetAdvantage, the Datamonitor Business Information Center, the Market Research Monitor, and
others. (S&P NetAdvantage is a particularly good source of industry-specific reports. It includes
sections on Current Environment, Industry Profile, Industry Trends, How the Industry Operates,
Key Industry Ratios and Statistics [e.g., ?How to Analyze an Airline?].) Please let me know when
you find an online database that is particularly useful or interesting.
You need to document the sources of the information in your report. Please prepare your paper?s
in-text references and citations in conformity with the guidelines in the APA Style Guide (i.e., no
footnotes for references ? you must use parenthetical citations). Regardless of the Style Guide?s
prescriptions, you must format the main body of your report in the following way:
Times New Roman font, 11point (just like this line)
One-inch margins on each side
Title page with student names, team number, company names
No more than six (6) pages of text
The six-page length restriction applies only to the main body of the report. It does not apply to the
cover page, appendices, figures, graphs and tables that you include with your report. The length
restriction may seem difficult at first, but part of preparing a good report is learning to
parsimoniously and convincingly express the most important ideas in a concise manner.
You can access WRDS at . I will distribute a username and password at
a later date.
Mergent Online is a wonderful source for all company information, and especially for hard-to-find financial
statements. For example, long after DaimlerChrysler was formed and Daimler Benz was dropped from the
SEC Edgar and other databases, we could still find a PDF of the original pre-merger Daimler Benz AG
7. Final notes
The project (including the presentation) will be worth 125 points (out of 525 for the semester).
Rigor, originality, and creativity are encouraged. In your final report, you should include the
following items in the appendix:
Copies of the two (2) most relevant articles for your report.
The primary financial statements (i.e., BS, IS and SCF) and the footnote describing the
acquisition from the financial statements of the acquiring company for the period
immediately after the M&A transaction.
The primary financial statements (i.e., BS, IS and SCF) for the target company for the
period immediately preceding the M&A transaction.
Section A Group 7
Phase 1 Report- Tesla acquires SolarCity
Guangyu Zhu, Jasper Wang, Tzu-ching Chou, Yiqing Lin, Yumeng Zhuang
US ? Tesla Motors Inc (Tesla) acquired the entire share capital of SolarCity Corp (SolarCity), a
San Mateo- based provider of solar energy installation services, in a stock swap transaction valued
at an estimated USD 2. 59 bil. Tesla offered an amended 0.11 common share for every SolarCity
share held. Based on Tesla?s closing stock price of USD 234.79 on 29 July 2016, the last full
trading day prior to the announcement, each SolarCity share was valued at USD 25. 827.
Previously, Tesla offered 0.131 common share for every SolarCity share held. This transaction is
Tax- Exempt under IRC s386.
Date announced: 06.21.2016
Date effective: 188.8.131.52
Section 1 overview
Tesla is one of the most famous cutting edge technology giants, focusing on electric vehicle
productions and renewable energy storages and installations. Tesla has grown globally on their
electric cars business, with strong sales and services networks. SolarCity Corporation, on the other
hand, sells renewable energy and energy storage solutions at lower costs than traditional fossilfuel energy so that customers could afford to adopt solar energy and storage systems. By the date
of acquisition, SolarCity had managed to provide customers low-cost solar energy. Tesla intended
to build the world?s first vertically integrated sustainable energy company?designing, generating,
installing, and storing clean energy. According to Tesla?s 10K report, they ?expected to achieve
cost synergies of $150 million in the first full year and save customers money by lowering
hardware costs, reducing installation costs, improving manufacturing efficiency and reducing
customer acquisition costs? (SEC). It seemed to be fairly reasonable that an energy storage
company combined with an energy production company. However, there were many reports and
analysts stated this acquisition was a ?bailout? for SolarCity. Elon Musk was the largest
shareholder of both companies, and the founders of SolarCity were Mr. Musk?s relatives. There
were lots of overlapping interests on two companies? boards. Most importantly, at the time of
acquisition, Tesla and SolarCity were both losing money. Therefore, numerous analysts and
investors had questioned the real motives behind this acquisition.
Section 2 stock market reaction
Key events dates
? On Tesla?s own website, August 1, 2016
? https://www.tesla.com/blog/tesla-and-solarcity-combine : ?Here are some key
terms of today?s announcement: this is an all-stock transaction with an equity value
of $2.6 billion based on the 5-day volume-weighted average price of Tesla shares
as of July 29, 2016. U?
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