10.9 Acquiree Awards Remain Outstanding
In some cases, the acquirer is not required to replace the
acquiree’s share-based payment awards and they remain outstanding after the
acquisition. For example, if the acquiree becomes a subsidiary of the acquirer, the
share-based payment awards that were issued by the acquiree before the business
combination might remain outstanding after the business combination. In that case,
assuming that they qualify for equity classification, we believe that those awards
represent a noncontrolling interest in the subsidiary in the parent’s consolidated
financial statements. While the guidance in ASC 805-30-30-1(a)(2) states that any
noncontrolling interests should be measured and recognized at fair value, we believe
that unvested share-based payment awards should be measured in the same manner as
replacement awards; that is, a fair-value-based measure is used in accordance with
ASC 718.
While ASC 805 does not address awards that have postcombination vesting requirements,
we believe that the acquirer should apply the replacement award guidance by analogy
and determine the portion of the acquisition-date fair-value-based measure of the
acquiree award that is attributable to precombination vesting and recognize that
amount as noncontrolling interest (as opposed to consideration transferred). The
portion related to postcombination vesting should be recognized as compensation cost
in the postcombination financial statements. See Section
10.2 for more information about determining that allocation.