In Mid-2008, Fresenius, a German Manufacturer of Dialysis Equipment, Acquired

question 114

Essay

In mid-2008, Fresenius, a German manufacturer of dialysis equipment, acquired APP Pharmaceuticals for $4.6 billion. The deal includes an earn-out, under which Fresenius will pay as much as $970 million, if APP reaches certain future financial targets. What is the purpose of the earn-out? How does it affect the buyer and seller?

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Definitions:

Direct Labor Cost

The total cost of workforce directly involved in the manufacturing of a product, including wages and salaries.

Budgeted Balance Sheet

A financial statement that projects the financial position of a company at a future date, including assets, liabilities, and equity.

Pro Forma

Financial statements or projections based on hypothetical scenarios or assumptions to forecast future financial performance.

Capital Expenditures

The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset’s useful life.