Harmonix Sale From Viacom Also Included $115 Million Tax Benefit
Remember all the knuckleheads (excuse my language) on message boards, forums, and Twitter who said “Harmonix was sold for only $50? I could have bought them!” As I originally stated in the initial announcement, this “$50 price tag” did not include the tax benefit realized by Viacom, as well as the relief of all related outstanding liabilities. The wording of the sale per the contract probably states something to the effect of “$50 and other valuable consideration.” Fundamental principles of contract law require each of the parties to exchange something of value, and there can be no enforceable agreement without that exchange, so the arbitrary amount of $50 was chosen.
In Viacom’s latest quarterly financial statement, we now know how much the tax benefit was for Viacom. According to their 10-Q statement:
“For tax purposes, the disposal generated a tax benefit of approximately $115 million, of which approximately $45 million is expected to be realized as a cash refund of taxes previously paid on capital gains and the remaining $70 million benefit will be available to offset qualifying future cash taxes.”
So I guess the revised price tag that responsible journalists would now report is that the price tag for Harmonix was $115,000,050. And even that is lowballing it, too. This new price tag doesn’t include the value of outstanding liabilities that Viacom offloaded as well, which are difficult to estimate, but one could only assume are also significant.
[via Gamasutra]
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It was nice to see this follow up come across the wire. Often people forget that business isn’t always as simple as they think.
No company could be bought for $50 (at least none that would still be operational). Sure, I could reach into my pocket and pull out a crisp $100 bill and get change back, but I’d also have to take on whatever debts came with the company.
Hence why it was “only” $50. Thanks for posting this. Hopefully said knuckleheads will return to panicing about DLC choices and whatever other disaster is currently ravishing the RB world.
Columbus Nova must be pretty confident in Harmonix’ potential if they are willing to eat $115M in debt!
killer_roach Reply:
April 29th, 2011 at 2:07 pm
They aren’t eating it. Viacom already did, which is allowing them to write off some of their tax burden (possibly some of it retroactively, which would be an even bigger benefit to them).
Croq Reply:
April 29th, 2011 at 3:23 pm
Exactly. Had Viacom transferred this debt to Columbus Nova, it would be Columbus Nova that would get the big write-off. At least I think that would be the case.
Doesn’t really matter much in the long run though, long story short, Viacom got more than $50 worth of benefit from selling off Harmonix. Just a lot more complicated than a cash/stock sale.
RockBandAide Reply:
April 29th, 2011 at 4:45 pm
Viacom did transfer the debt. Columbus Nova is responsible for the remainder of liabilities on Harmonix’s balance sheet at the time of divestiture.
Croq Reply:
April 30th, 2011 at 10:41 pm
Okay, so color me confused. If Viacom transferred that liability to Columbus Nova, how were they able to then write off that liability if they didn’t have it anymore?
I’m not an accountant, nor do I play one on TV…
killer_roach Reply:
May 3rd, 2011 at 3:31 pm
@Croq:
What it is is that losses from past years can be written off as a capital expenditure on corporate taxes for present and future years, but debts cannot be so easily discharged.
In this case, Columbus Nova acquired Harmonix and whatever outstanding debt they have, while Viacom writes off past capital losses.
RickC Reply:
May 2nd, 2011 at 11:34 am
@Croq
I think we have descended deep enough where I cannot reply anymore, but this meant as a reply to your message of 10:41pm. I think what happened is that Viacom had $115M in debt related to Harmonix sitting on their books. By selling both Harmonix and Harmonix’ debt to Columbus Nova, they simply no longer have that debt. It was not so much written off as simply removed from Viacom’s books. It is Columbus Nova’s problem now.
Imagine you had a rental home that you owed $115K on it’s mortgage. You are having trouble renting it, having trouble paying the mortgage, interest on the mortgage keeps building up. It seemed like easy money at first but it turns out you are not very good at this whole real estate thing. Now, someone gives you a check for $50 and assumes your mortgage. The mortgage debt was not written off. It is just the new owners problem now. If they can figure out a way to make money off the property, good for them. You are just happy it is someone else’s debt now. That puts you in a much better financial position.
I *think* that is what happened. I develop financial software but I am not an accountant.
I have always wanted to see the checks used to pay for these “small” payments just for kicks. Another example of a seemingly low payment, Steve Jobs’s $1 salary from Apple even though he gets plenty of value from his Disney stock outside of his nominal salary.
This is what I was saying all along. The $50 was only a formality. They had to take a “loss” on the value in order to reap a giant tax benefit. This is not exactly abnormal for business divestitures. But you can’t exactly expect much from the typical herp derp that uses the internet.
Just more confirmation that Harmonix is not dying and neither is Rock Band.
I was expecting as much. I couldn’t imagine US law (or whatever rules apply here) were so easy to circumvent by Viacom.
Just taking a look at that image, any idea where it was from? I find it interesting that Rock Band and AC/DC Black Ice appear on the same display. Maybe I’m really getting my hopes up about Black Ice appearing as an album download eventually, but either way my interest is piqued.
Mr Mogel Reply:
April 30th, 2011 at 5:31 am
It’s an MTV building, which means at the time of the picture both were working with MTV, not necessarily working togethor.
Possible but in my opinion not even rumour-worthy.
KEWB Reply:
April 30th, 2011 at 10:38 am
I noticed that too, not really thinking anything was going to come of it. After looking at it closer though, I’m pretty sure there’s nothing RB related on the AC/DC side of the wall (and vice versa). Likely just as Mr. Mogul said.
thefncrow Reply:
April 30th, 2011 at 5:58 pm
The thing to remember is that the AC/DC pack was basically during the period when AC/DC was promoting Black Ice, and it even tied in with the Walmart exclusivity thing. That was also basically right in the Rock Band 2 release window too.
So, promoting Rock Band + Black Ice promoted Black Ice, Rock Band 2, and the AC/DC Rock Band disc all in one, which would explain why they’re together.