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Mergers And Acquisitions
 3 Months Ended
Mar. 31, 2012
Mergers And Acquisitions [Abstract]  
Mergers And Acquisitions
4. Mergers and Acquisitions

On March 28, 2012, we obtained 100% of the voting equity interests of VE Newco, LLC ("Vivendi Entertainment"), a subsidiary comprised of the former Vivendi Entertainment division of Universal Music Group Distribution, Corp. ("UMG"), pursuant to a Purchase Agreement dated March 6, 2012, as amended, between UMG and one of our subsidiaries. Vivendi Entertainment, with its exclusive distribution rights agreements with large independent studios/content providers, distributes entertainment content through home video, digital and television distribution channels.

The provisional total consideration transferred was approximately $32.7 million and was comprised of $13.4 million in cash and a $19.3 million non-interest bearing, 90 day promissory note ("Note") representing the preliminary estimated carrying value of Vivendi Entertainment's working capital. The portion of the purchase price tied to the carrying value of Vivendi Entertainment's working capital is preliminary and subject to adjustment based upon a post-closing review that is anticipated to be completed by early June 2012. Under the terms of the Note and other related Vivendi Entertainment acquisition agreements, UMG will be collecting the pre-closing accounts receivable of Vivendi Entertainment for a 90 day period following the closing date of the acquisition. The terms of the Note provide that for each of the 30 day periods following the closing, UMG is entitled to retain, out of the collected funds, an amount equal to the greater of 1/3 of Vivendi Entertainment's pre-closing accounts receivable or 1/3 of the principal amount of the Note as payments on the Note, with the balance of the Note due, if any, 90 days following the acquisition date of Vivendi Entertainment. For each such 30 day period, UMG will remit to Gaiam Vivendi Entertainment any amounts collected on the pre-closing accounts receivable in excess of the amount UMG is entitled to retain, if any. The consideration excludes $1.7 million of expenses that are reported as acquisition-related costs in our condensed consolidated statement of operations for the three months ended March 31, 2012. The acquisition also effectively settled a preexisting media distribution relationship between Vivendi Entertainment and us, resulting in the elimination upon consolidation of certain accounts receivable, participations payable and inventory balances.

We acquired Vivendi Entertainment, with its distribution rights to over 3,400 media titles, to materially strengthen our existing media distribution services platform and elevate us to the third largest non-theatrical content distributor in the United States. With the combined scale of Vivendi Entertainment's and our existing distribution operations, we expect to realize significant operational and financial synergies, including reduced third-party distribution costs and lower post-production and digital distribution costs, which are projected to increase our gross margins. These anticipated strategic benefits will be the primary contributors to any goodwill resulting from the acquisition.

The estimated purchase price and fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date. We believe that information provides a reasonable basis for estimating the consideration transferred and the fair values of assets acquired and liabilities assumed, but we are waiting for additional information necessary to finalize the amounts and identify separable intangibles, the majority of which we anticipate will be customer-related intangibles. Therefore, the provisional purchase price and measurements of fair value reflected below are subject to change and such changes could be significant. We expect to finalize the purchase price by early June and determine valuations and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. Any goodwill that is eventually identified will be attributable to our business segment and deductible for tax purposes.

 

The following table summarizes the provisional estimated purchase price and fair values of Vivendi Entertainment's acquired net assets, which are additions to our business segment's net assets.

 

(in thousands)

    March 28,
2012		  

Accounts receivable

    $ 24,883   

Advances

      7,947   

Other current assets

      263   

Other intangibles

      13,400   
  

 

 

  

Total assets

      46,493   
  

 

 

  

Participations payable

      (11,799 ) 

Accrued liabilities

      (1,964 ) 
  

 

 

  

Net assets acquired

    $ 32,730   
  

 

 

  

We included the results of operations from Vivendi Entertainment in our consolidated financial statements from March 28, 2012. Consequentially, $0.3 million and $0.1 million of Vivendi Entertainment's post-acquisition date revenue and net income, respectively, are included in our condensed consolidated statement of operations for the three months ended March 31, 2012.

As a result of the timing of the acquisition of Vivendi Entertainment, we have not had sufficient time to finalize the purchase price and purchase price allocation or assemble the pro forma information related to the acquisition. We expect to provide this information related to our acquisition of Vivendi Entertainment in our future filings.