Goodwill in Acquisitions: The Case of Talbots and J. Jill

Goodwill arises during an asset acquisition when the purchase price paid exceeds the fair market value of the identifiable net assets of the acquired company. These identifiable net assets include tangible assets (property, equipment) and intangible assets that can be separately identified (patents, trademarks).

SFAS No. 142 (Statement of Financial Accounting Standards No. 142), also known as the “goodwill impairment” standard, eliminated the amortization of goodwill. Previously, companies were required to spread the excess purchase price (goodwill) over a period of time as an expense on the income statement. However, SFAS No. 142 shifted the focus to impairment testing of goodwill, where companies assess whether the goodwill’s carrying value remains recoverable.

The Case of Talbots and J. Jill

(Assuming the case refers to the acquisition of J. Jill by Talbots):

• Fair Market Value of Identifiable Net Assets: We don’t have the specific dollar amount readily available, but the case should detail the fair market value of J. Jill’s identifiable net assets as determined by the valuation process during the acquisition. This value would include the appraised value of J. Jill’s tangible assets (buildings, inventory) and intangible assets that can be separately identified (trademarks, customer lists).
• Why Talbots Paid More: Talbots likely paid more than the fair market value of J. Jill’s identifiable net assets due to the presence of intangible assets that are not separately identifiable. These could be:
  • Brand reputation and customer loyaltyof J. Jill
  • Synergiesexpected from combining the two companies’ operations or customer bases
  • Superior management expertiseof J. Jill
  • Market dominance or strategic advantagesgained through the acquisition

These intangible assets, though not separately valued, contribute to the overall future earning potential of the combined entity, justifying a purchase price exceeding the identifiable net assets. This excess purchase price is then recognized as goodwill on Talbots’ financial statements.

Note: To access specific details about the fair market value and the rationale behind the purchase price in the Talbots-J. Jill case, you would need to refer directly to the case study or its source documents.