New business combinations

Effect of new business combinations

Early 2010, Bekaert announced the acquisition of two Bridgestone tire cord plants i.e. BMI, Sardinia (Italy) and BSSH, Huizhou (Guangdong Province, China)^[1]. The acquisition was finalized through a share deal effective from March 31. As part of this transaction, Bekaert and Bridgestone have entered into a long-term agreement to supply tire cord to Bridgestone. The total purchase consideration for this deal amounted to € 31,9 million, while the fair value of the net assets acquired was measured at € 32,5 million, resulting into a negative goodwill of € 0,6 million. Consequently, a gain of € 0,6 million was recognized in the non-recurring items section of the income statement. The limited negative goodwill implies that this is an equitable deal.

The table below presents the net assets acquired by balance sheet caption, showing the effect of fair value adjustments applied in accordance with IFRS 3 Business Combinations. It also clarifies the amount shown in the consolidated cash flow statement as ‘new business combinations’.

The substantial positive fair value adjustment on intangible assets relates to the rights to use land in Huizhou.
The substantial negative fair value adjustment applied to the property, plant and equipment is based on a discounted cash flow model.
Although the supply agreement with Bridgestone represents an intangible asset, its fair value was deemed nil. Of the € -2.5 million fair value adjustments to the trade receivables, only € -0.1 million relates to a general bad debt allowance. The remaining part relates to cut-off adjustments offset by equivalent adjustments to the inventories.

The effect on consolidated sales and on the result for the period is shown below:

It is impracticable to recalculate the consolidated sales and results for the period as if the acquisition date were January 1, mainly because this would cause undue effort and cost in view of its limited relevance.

On 1 July 2010, Bekaert sold its diamond-like carbon coating business to Sulzer (Switzerland). The deal covers the move of 6 production plants (in EMEA and North America) and 150 employees to Sulzer.
On 22 December 2010 Bekaert signed the final agreement for the takeover by Arisawa (Japan) of Bekaert's Progressive Composites plants in Vista, California and in Munguía, Spain. Bekaert herewith divested its activity platform of pressure vessels, which accounted for less than 1% of the Group's consolidated sales.

The table below presents the net assets disposed by balance sheet caption. It also clarifies the amount shown in the consolidated cash flow statement as ‘Proceeds from disposal of investments’.
The other disposals relate to Bekinit KK (Japan), Precision Surface Technology Pte Ltd (Singapore) and Bekaert Handling Group AS (Denmark), none of which is material enough to be disclosed separately. 

[1] BMI: Bridgestone Metalpha Italia SpA – Sardinia, Italy; BSSH: Bridgestone (Huizhou) Steel Cord Co., LTD – Huizhou, China