Microsoft Corporation (NASDAQ:MSFT) announced on Monday to take a non-cash, non-tax deductible charge in the fourth quarter of current financial year for its disappointing acquisition of aQuantive in 2007. The company blamed lack of growth in its Online Services Division for huge decline in the value of assets.
The accounting guidelines require companies to conduct annual goodwill impairment test for every business unit. Goodwill arises when the fair value paid during acquisition of a business is higher than the value of identifiable net assets. Impairment in the goodwill of Online Services Division is the direct result of aQuantive acquisition for $6.3 billion. During its 2012 impairment review, Microsoft decided that it needs to write down approximately $6.2 billion off its Online Services Division goodwill.
Though the Internet advertising firm aQuantive continues to provide tools for Microsoft’s online advertising practices, the growth hasn’t been up to the expectations, leading to the write down. And the company expects lower growth in future than the previous estimates.
Other divisions of Microsoft are performing pretty well. Bing’s market share as well as revenue per search (RPS) is growing. MSN is the top portal in 29 international markets, and the partnership with Yahoo! is growing geographically.
Microsoft anticipates the write down not to affect its financial performance or ongoing business. However, the massive write down may stimulate investors to raise objections the next time Microsoft attempts a mega deal. The aQuantive purchase looks dwarf when compared to the amount Microsoft paid recently for Skype: $8.5 billion.
Microsoft shares were flat on Monday with a little fall in the later part of the day.