a. From a strategic perspective, discuss why you believe Disney would make this acquisition.
b. Assuming that the assets and liabilities of Marvel approximate their individual fair values at the date of acquisition, compute goodwill.
c. This is a 100% acquisition. What role does the 29% premium play in the computation of goodwill? If this were a less than 100% acquisition, how would the 29% premium affect the computation of the non controlling interest?
d. Disney will record a decrease in its cash and an increase in its shareholders' equity totaling $4 billion at the date of acquisition. Contrast the rest of the financial statement effects on Disney's own records and on its consolidated balance sheet between two scenarios: Marvel is dissolved (a merger) and Marvel continues to exist as a separate legal entity (an acquisition).
e. It is unlikely that the assets and liabilities of Marvel as shown in the condensed quarterly balance sheet approximate their individual fair values at the date of acquisition. Indeed, some of Marvel's most valuable resources might not be recognized on their balance sheet. As a result, the entire excess acquisition price is not likely to be assigned to goodwill.
Identify items that are likely to receive a portion of the allocation based on the differences between their book values and fair values.
In August 2009, The Walt Disney Company announced that it would acquire Marvel Entertainment, Inc., in a $4 billion cash and common stock deal. On a per-share basis, the consideration given by Disney to Marvel shareholders represents a 29% premium over Marvel's share price at the date of acquisition. Disney acquires the more than 5,000 characters in Marvel's library, including Iron Man, Spider-Man, X-Men, Captain America, and the Fantastic Four. Exhibit 8.36 presents the condensed consolidated balance sheet of Marvel at the end of its June 30, 2009 second quarter.

Transcribed Image Text:

Exhibit 8.36 Marvel Entertainment, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except per-share amounts) June 30 December 31 2009 2008 ASSETS Current assets: Cash and cash equivalents Restricted cash Short-term investments Accounts receivable, net Inventories, net Income tax receivable Deferred income taxes, net Prepaid expenses and other current assets 81,039 105,335 12,272 32,975 144,487 11,362 2,029 34,072 5,135 $ 197,070 347,667 38,220 29471 13,473 206 25,497 9,164 Total current assets Exhibit 8.36 (Continued) Fixed assets, net Film inventory, net Goodwill Accounts receivable, non-current portion Income tax receivable, non-current portion Deferred income taxes, net-non-current portion Deferred financing costs Restricted cash, non-current portion Other assets 4,1943,432 181,564 346,152 1,321 5,906 13,032 5,810 31,375 455 $820,529 936,714 192,068 346,152 7,010 5,906 17,046 3,320 42,274 5,489 Total assets LIABILITIES AND EQUITY Current liabilities: Accounts payable Accrued royalties Accrued Deferred revenue Film facility Total current liabilities Accrued royalties, non-current portion $ 2,860 2025 76,580 89,912 33,826 67, 468 expenses and other current liabilities 81,335 204,800 $194,066 405,375 10,499 48,939 8,201 59,267 8,612 S365.770 540893 806 revenue, non-current portion Film fadility, non-current portion Income tax payable Other liabilities 66,522 10,680 Total liabilities Commitments and contingencies Marvel Entertainment, Inc stockholders equity: Preferred stock, $.01 par value, 100000,000 shares authorized, none issued Common stock, $.01 par value, 250,000,000 shares authorized, 134,681,030 issued and 77,997619 outstanding in 2009 and 134,397,258 issued and 78,408,082 outstanding in 2008 Additional paid-in capital Retained eamings Accumulated other comprehensive loss 752,438 628,628 (4,574) 1,3471,344 750,132 555,125 (4,617) Total Marvel Entertainment, Inc stockholders' equity before treasury stock $1,377,839 $1,301,984 Treasury stock at cost, 56,683,411 shares in 2009 and 55,989,176 shares in 2008 (921,700) (905,293) $456,139 396,691 Total Marvel Entertainment, Inc. stockholders' equity Noncontrolling interest in consolidated Joint Venture (1,380) (870) Total equity Total liabilities and equity 454,759395,821 $820,529 936,714 Source: Marvel Entertanment Inc, Quaterly Reports, June 30, 2009, and December 31, 2008.