Note 15 – Acquisitions
On 31 August 2004, the Group acquired the UK operations of Crown Castle International Corp. for a total consideration of £1,138m, including acquisition costs of £14m. This transaction has been recorded using the acquisition method of accounting.
Goodwill arising on this acquisition, being the difference between the purchase consideration and the fair value of the assets and liabilities acquired, amounted to £622m and is being amortised over a period of 20 years from the date of the acquisition, being its estimated useful economic life.
The other acquisition that was carried out during the year ended 31 March 2005 was that of a telecommunications tower operation in the US. The book and fair value of assets acquired was £10m compared with total cash consideration of £13m, giving rise to goodwill of £3m, which is being amortised over a period of 20 years.
The acquired businesses are presented within the Wireless infrastructure segment.
| Crown Castle acquisition | Other acquisition |
||||||
|---|---|---|---|---|---|---|---|
| |
Book value at acquisition £m |
Accounting policy adjustments £m |
Fair value adjustments £m |
Final fair value £m |
Book and fair value £m |
Total fair value £m |
|
| Tangible fixed assets | 519 | (4) | 111 | 626 | 6 | 632 | |
| Stocks | 3 | – | – | 3 | – | 3 | |
| Debtors | 43 | – | – | 43 | 4 | 47 | |
| Cash and deposits | 29 | – | – | 29 | – | 29 | |
| Creditors | (152) | – | – | (152) | – | (152) | |
| Provisions for liabilities and charges | (34) | 1 | – | (33) | – | (33) | |
| Net assets acquired | 408 | (3) | 111 | 516 | 10 | 526 | |
| Goodwill arising on acquisition | 622 | 3 | 625 | ||||
| Total consideration | 1,138 | 13 | 1,151 | ||||
The adjustments recorded to book value reflect accounting alignments to bring the accounting policies of the acquired businesses into line with those of the Group, which resulted in a reduction of £4m to tangible fixed assets relating to the accounting for leasehold properties; and an increase of £1m to provisions for liabilities and charges relating to decommissioning provisions, offset by associated decreases in the provision for deferred tax of £2m.
Fair value adjustments primarily related to the revaluation of tangible fixed assets to their fair value at the date of acquisition.
The profit after tax of the UK operations of Crown Castle International Corp. for the period from 1 January 2004 to 31 August 2004 was £3m, reflecting turnover of £160m, operating profit of £22m, profit before tax of £15m and taxation of £12m. This compared with the reported profit after tax for the year ended 31 December 2003 of £2m.
The following unaudited pro forma summary information is provided for illustrative purposes and presents the effect of the acquisition of the UK operations of Crown Castle International Corp. on the continuing operations of the Group as if the acquisition had occurred on 1 April 2003. The pro forma summary reflects estimates of the effect of adopting the fair value adjustments for the acquisition and the increased net interest costs, together with the associated tax effects, that would have resulted if the acquisition had taken place at that earlier date. The pro forma summary does not necessarily reflect the results of operations as they would have been if the acquired business had been part of the Group during the years presented.
| Continuing operations - pro forma |
2005 Pro forma (unaudited) £m |
2004 Pro forma (unaudited) £m |
|---|---|---|
| Turnover | 8,624 | 9,111 |
| Profit for the financial year | 881 | 1,013 |
| pence | pence | |
| Earnings per share | 28.6 | 33.0 |
The accounting policy adjustments made did not affect the profit for the year.