|
Knowledge@Wharton is an online business publication presenting business news, analysis
and research to corporate executives, entrepreneurs, policy makers and academics. For complete versions of these and other articles, visit this free site at
http://knowledge.wharton.upenn.edu
New Collaboration Announced
Valuing the Invisible: How To Manage Bankruptcies of
Knowledge-Based Companies
When Enron descended into Chapter 11
on December 12, the $63 billion bankruptcy
represented the largest-ever filing
in modern history, according to the
American Bankruptcy Institute. The
company's rapid rise and sudden fall is
destined to become the subject of countless
case studies and has already spurred
politicians to call for new regulations
covering everything from accounting services
to pension administration.
But considered from another viewpoint,
Enron is not a groundbreaker.
Instead, it is a symbol of a growing trend
that is forcing attorneys, accountants,
and others to consider how to handle a
bankruptcy when the debtor company's
possessions are largely composed of
intangible assets like intellectual property,
patents, licenses, and/or contracts.
In a recent newspaper opinion piece,
Penn law school professor David A.
Skeel, Jr. noted that the Chapter 11
process typically has provided "breathing
space for an otherwise viable business
that had too much debt or needed to
deal with a sudden shock of one kind or
another. The company's managers and
their lawyers usually worked out a careful
strategy before they ever filed the
bankruptcy case."
But Skeel adds that the bankruptcy
process, especially a Chapter 11 reorganization,
is designed to restructure
"bricks-and-mortar assets that are not
going anywhere." The process, he notes,
may get more complicated when intangible
assets are involved.
The first problem, of course, lies in
identifying the invisible property, like
a patent or copyright, which may be
buried in a balance sheet. Or in the case
of intellectual property, it may literally
walk out the door each day with its
creator. Additional challenges include
assigning a value to items like domain
names or customer lists and determining
who in fact owns them. Creditors have
been wrestling with this valuation issue
on a large scale since at least early 2000
when the Internet bubble burst.
Knowledge-based assets make up a
growing proportion of economic valuation,
but "people believe that current
accounting models really don't capture
their worth," says Wharton accounting
professor David F. Larcker. "For example,
despite the fact that [a company]
may have intellectual property (IP)
that holds significant value, the IP may
not in fact have ever been catalogued
or identified."
According to Larcker, as part of a
bankruptcy proceeding, a trustee should
not only look for patents and other registered
intangible assets but should also
search for such undocumented intangible
assets as process know-how. "Often
a company may not even realize it has
valuable information," he says. "Perhaps
the intangible assets are not much use
to the business that developed it, but
another firm may find them to be very
valuable."
In such a case, notes Larcker, the
worth of the intangible asset may be
decided in an open auction. "Despite the
fact that the IP or other assets are being
disposed of at a ‘fire sale,' spirited bidding
may lift the price. But it can be difficult
to get a handle on just what these
assets are worth."
To read a longer version of this article, visit
http://knowledge.wharton.upenn.edu/articles.cfm?catid=1&articleid=513
New Collaboration
Announced
Knowledge@Wharton, the school's
online research and business
analysis journal, recently
announced a unique collaboration
with Universia.net, a leading
scholarly web portal with more
than 450 partner universities in
10 countries.
For Knowledge@Wharton,
which will celebrate its three-year
anniversary at the end of May,
the partnership extends the
knowledge network to Spanish-
and Portuguese-speaking readers
around the world.
As part of the collaboration,
Knowledge@Wharton will help
create an Internet-based service to
distribute business and education
content both from Wharton and from
Universia.net's partner institutions.
The site will be launched in the fall
of 2002. Its database will include
articles and research papers from
existing Knowledge@Wharton
content, as well as articles uniquely
created for the collaboration.
The Knowledge@Wharton/
Universia.net collaboration was
finalized February 18 in Mexico City
where the Minister of Education
announced the launch of
Universia.net's Mexican portal.
Knowledge@Wharton was
recently named the number one
business school portal by Inc.
magazine. The site has more than
165,000 subscribers in 189 countries,
and subscriptions are increasing at
a rate of 4,000 to 6,000 a month.
Approximately 85% of the users are
from the business community.
Among these users, 15% are CEOs
or top managers of their companies,
35% are in senior management, and
45% are in middle management.
Sponsors of the site include GE
Capital, Ford Motor Company, Intel,
Merrill Lynch, Microsoft,
BusinessWeek Resource Center,
and Aon Consulting.
|
