European companies that adopted IFRS goodwill accounting may have their first severe year of reckoning with goodwill impairment charges this year. A few big companies will be on watch for writedowns. Vivendi has already indicated they will take a write down on its €22-billion of goodwill.
As with other markets around the world, European markets have been beaten up and lost significant value over the last six months or so.
Total goodwill reported for companies included in the Dow Jones Stoxx 600 index is about €1 trillion. This compares with a total market capitalization of around €3.5 – 4 trillion for the index., The Stoxx index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK.
France Télécom (€32-billion), Vivendi (€22-billion) and Sanofi-Aventis (€43-billion) account for over 10 percent of French goodwill.
In France alone, the total amount of goodwill for companies included in the SBF 120 stock-market index reached €350 billion at the end of June, as companies have spent heavily on acquisitions over the past few years. The overall goodwill for SBF 120-listed companies compares with a total market capitalization of €841.5 billion for that index at Friday's close. The SBF 120 is a French stock market index. The index is based on the 120 most actively traded stocks listed on the Paris Bourse Paris Bourse (now Euronext Paris). The index includes all 40 stocks in the CAC 40 index (a capitalization-weighted measure of the 40 highest market caps on Euronext Paris, plus a selection of 80 additional mid-cap stocks listed on Euronext Paris.
IFRS rules require an annual impairment test. In addition, companies must test goodwill if other indicators exist. Other indicators include drops in market prices, or other indications of reductions in the present value of future cash flows from their individual cash-generating units can indicate goodwill impairment.
With information form Nathalie Boschat at the Wall Street Journal
