WASHINGTON -- The top US securities regulator Tuesday described the blockbuster purchase of Time Warner by America Online as a "smart" deal and praised the accounting method to be used for giving investors a clearer picture of the transaction.
Securities and Exchange Commission chairman Arthur Levitt, who rarely comments on specific mergers, said the companies had recognized each other's qualities in the proposal announced Monday. "I thought it was smart," Levitt told Reuters in an interview.
Mergers like the one between top Internet service provider AOL, and Time Warner, the world's largest media company, were fueled in part by the need for efficiency and productivity, Levitt said. "I think it's part of a phenomenon of a changing economic climate with technology fueling a drive toward greater and greater productivity," he said.
Levitt praised the "purchasing accounting" method that AOL plans to employ in its acquisition, which will force it to recognize the goodwill premium it pays above fair market value for intangible assets such as well-known brand names.
It differs from the pooling method, where merging companies combine balance sheets and write off goodwill though a one-time, noncash charge that does not impact future earnings.
"I think that a merger of this size employing the purchase method probably represents a clearer picture of the transaction to investors than the pooling method would have," Levitt said.
