* Study says many firms face goodwill impairment charges
* Book value of equity tops market cap for 1/5th Stoxx 600
* Ratios worst in autos, miners, banks, insurers, property
By Tom Freke and Quentin Webb
LONDON, Oct 27 Major European companies may be
forced into writedowns totalling hundreds of billions of euros
as they recognise the fallout from a 1.8 trillion euro ($2.7
trillion) acquisition binge earlier this decade.
A report from investment bank Houlihan Lokey suggests
boom-year mergers and acquisitions (M&A) destroyed value for
many acquirers, who now face hefty goodwill impairment charges
for their 2009 accounts.
Houlihan found the book value of equity for a fifth of DJ
Stoxx 600 companies significantly outstripped the
stock-market valuation of those companis at the end of June.
"Companies cannot postpone their impairments for much longer
-- the only question is how much they will have to book," Marc
Hayn of Houlihan Lokey told Reuters.
Hayn said despite the recent stock market boom, impairments
may total hundreds of billions of euros.
The most at-risk sectors were autos, metals, property,
banks, insurers and other financial institutions, where more
than 40 percent of companies had a book value well above their
market value. Yet companies in almost every sector will be
affected, the only exception being healthcare, the report said.
However, companies may avoid charges if accountants judge
the "value in use" of an asset is higher than the value at which
it is held on a company's books.
Much will depend on how strict auditors decide to be when
reviewing companies' business plans for next year.
"Auditors will press companies to take these impairments,"
said Timothy Smith, a co-author of the report. "The financial
crisis has made auditors more jumpy -- many are now keen to show
their independence (from) companies."
From 2005 to March 2009, companies in the DJ Stoxx 600 spent
1.8 trillion euros on takeovers, Houlihan said, but took only
200 billion in goodwill impairment charges.
After the last takeover boom, many companies took big
writedowns on the value of assets. In 2006 Vodafone Plc (VOD.L)
for instance recorded a 15 billion pound loss, due to a 24
billion writedown following the purchase of Germany's Mannesmann
Many of the goodwill writedowns taken in the past year have
been in the financial sector, with Royal Bank of Scotland
(RBS.L) taking the largest single hit -- a 16 billion pound
($26.3 billion) writedown in February following its acquisition
of ABN AMRO.
Earlier this year Deutsche Telekom AG (DTEGn.DE) took a 1.8
billion euro writedown on its British unit T-Mobile, which it is
seeking to merge with France Telecom SA's FTE.PA Orange.
(Editing by David Holmes)