Forum Archive Index - September 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi winner69,

> 
>Snoopy has pointed out - Goodwill of $23.2m was recorded on the
>acquisition of the business of Eagle Boys New Zealand as a result of
>purchasing 53 stores and effectively closing down Eagle Boys and
>converting the premeses to Pizza hutt outlets.   This represents a
>goodwill figure of  $437,736 per store acquired.....as compared to
>$271,621 for the original 36 Pizza Hutts
> 
>Why? Simply  2 different transactions at different points in time. RBD
>paid more for the Eagle Boys stores than what they valued the cost of
>the master franchise back when RBD was born.
> 

Agreed.   But the fact that all PH goodwill is now being amortised on 
the same time schedule, means, as I see it, that as from the time that 
the Eagle Boys stores were acquired:  "One PH restaurant is as good 
as any other".    In other words the historical accident of paying more 
per store for the Eagle boys stores is just that: an *historical* fact.     
Do you really think that if some third party bought all the Pizza Hutts off 
RBD today, that they would pay *more* for the ex Eagle Boys ones?

If you accept that the value of today's PH stores does not depend on 
where they came from, then it follows that either the old stores are 
undervalued or the new stores are overvalued in goodwill terms.   I 
guess you could figure it out by considering the profitability of PH 
today.    Why does the word 'writedown' come to mind?

>
>Obviously RBD thought such a price was worth it but when you look 
at
>on a store basis $437,000 seems a lot of goodwill for a store that was
>probably selling less than $800,000 at the time.
>

Agreed.   What this tells me is that RBD were *not* paying for those 
Eagle Boys stores as stand alone businesses.   The value they saw in 
acquiring Eagle Boys was something completely different to the dollar 
returns they could squeeze from each acquired store.  What exactly 
was it they ended up getting?

> 
>I wouldn't think RBD look at the 'goodwill' on a per stores basis -
>just treat it as cost of growing share.
> 

If acquiring Eagle Boys is a cost of growing market share, and this is 
what RBD bought in the Eagle Boys transaction, then the key word in 
that sentence is 'cost'.    

A  cost is an expense, not an asset, intangible or otherwise.    Treating 
'costs' as a 'capitalised assets'  (in this case goodwill) is one way that 
companies can *lie* to their shareholders, and so present a misleading 
picture of the true company position.    Is that your accusation 
Winner69?   If so, it is a tough one. But I am not sure I can argue 
against you.

SNOOPY

discl: hold RBD






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