Goodwill Is Bad News for U.S. Assets: Chart of the Day

Paying too much for takeovers represents a risk to the value of U.S. companies, according to Erin Lyons, a Citigroup Inc. credit strategist.

The CHART OF THE DAY tracks goodwill, or the amount by which purchase prices exceeded asset values, for companies in the Standard & Poor’s 500 Index during the past decade. Lyons had a similar chart in a report two days ago.

Goodwill more than doubled, to $247.34, on a per-share basis and climbed to 7.8 percent of assets from 5.2 percent in the 10-year period, according to quarterly S&P 500 data compiled by Bloomberg. The total dollar amount for companies in the index stands at $2.18 trillion. The chart displays per-share amounts and percentages.

“In some cases, companies are realizing that paying a high premium for acquisitions may not have been worth it,” Lyons, based in New York, wrote in the report.

Cliffs Natural Resources Inc. (CLF), the biggest U.S. iron-ore producer, said last week that it will write down $1 billion of goodwill from a deal completed in 2011. Caterpillar Inc., the world’s largest maker of construction and mining equipment, disclosed a $580 million writedown earlier in January on a Chinese unit acquired last year.

Three S&P 500 companies -- Frontier Communications Corp. (FTR), Nasdaq OMX Group Inc. and L-3 Communications Holdings Inc. (LLL) -- have more goodwill than market value, based on Bloomberg’s data. They were among 44 companies listed on U.S. exchanges that Lyons named as potential candidates for writedowns.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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