![]() Analysts did, however, comment strongly on indications of how the company would move forward-changes in signaled or explicit revisions in forward earnings guidance, the outlook for the market and business units, and any management actions or plans to address changing conditions. In this sample, in fact, only one analyst report issued after one announcement even commented on the size of the impairment. ![]() The trend is similar among the 15 largest goodwill impairments by European companies from 2010 to 2012. ![]() But the rest of the time, they either reacted positively or were largely neutral (exhibit). How often does a company’s share price go up, rather than down, following a write-down? Among 99 write-downs of at least $2 billion by US-based companies from 2007 to 2011, the range of reactions was broad, and investors did react negatively about half the time. Steel’s case, investors again expected the impairment and were also cheered by the news of a cost-cutting initiative that the new CEO laid out in detail as part of the impairment announcement. In Boston Scientific’s case, investors largely expected the impairment, and the company was already building a cost structure in line with its growth profile and benefiting from robust free cash flow to service its debt. A write-down is an accounting term for the reduction in the book value of an asset when its fair market value (FMV) has fallen below the carrying book value, and thus becomes an impaired asset. A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default. They applaud management for admitting as much and taking actions to improve the performance of the company. For example, servicers could accept a principal writedown by an amount at least sufficient to allow the borrower to refinance into a new loan from another source. In fact, our research finds that investors often perceive such moves to be good news-as long as they already knew or suspected that an acquisition was underperforming. Steel announced a goodwill impairment charge of $1.8 billion with its third-quarter earnings last year. Some cases in point: share prices jumped nearly 10 percent when Boston Scientific announced a $2.7 billion write-down associated with its 2006 acquisition of Guidant.
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