Mergers, Acquisitions, Divestitures, and Other Restructurings, + Website

Chapter 10Depreciation Schedule

The benefit of having a depreciation schedule is to lay out and project depreciation on not only the company's current assets but also future planned property (CAPEX). In a merger, the acquirer's core assets are combined with the target's. There also could have been some asset write-ups or write-downs, which will increase or decrease the net balance of assets, respectively. These write-ups or write-downs are handled in the balance sheet adjustments, row 117 of the Consolidated Financials tab, “Property, plant, and equipment, net.” We have also consolidated the acquirer's and target's projected CAPEX in the cash flow statement, row 90 of the Consolidated Financials tab. It is this net PP&E and CAPEX we will utilize to calculate the new pro-forma projected depreciation. In consolidating the PP&E and the CAPEX, we are assuming all assets at the time of the merger will be reappraised and so redepreciated from scratch. This is a major assumption. We had previously discussed that there are several ways line items can be projected based on how the merger is managed. The same goes for how depreciation will be projected. In other words, before the merger, the target depreciated its net assets and CAPEX at its own depreciation rate, and the acquirer depreciated its net assets and CAPEX at its own rate. So the real question to answer is whether the combined entity will continue to depreciate assets individually. Or will the combined assets and CAPEX depreciate ...