myx, page-132

Christos12,

Herein lies a lesson for you.

The total acquisition price generally consists of hard net assets + intangibles including goodwill. Financial models are prepared setting out the future cashflows that underpin the acquisition valuation, generally at an assumed discount rate.

Let's assume the discount rate is unchanged. If good will has to be written down then it is because future cash flows will be less than the originally forecast cash flows. That's a big negative because that means less profit, lower EPS etc. Not good for investors.

If the goodwill write off is tax deductible then the loss is merely ameliorated. For example a goodwill write off of $100m could give rise to a $30m taxable loss. This still leaves a $70m shortfall for shareholders to suck up. And in many cases the goodwill write-off tax benefit is so far into the future that it has a very small current value.

So goodwill write-offs (impairments) are not good for shareholders. Sometimes share prices anticipate a goodwill impairment and hammer the SP ahead of the announcement. That is only a timing issue.