Accounting Case Study, UM, Malaysia

In October 2020, Smart Co signed an agreement with Clear Inc. to divest the server memory business, including the memory fabrication facility and certain related equipment and tangible assets, memory technology, and wafer manufacturing business for cash consideration of $9B. The transaction is to be consummated over two closings at different dates to comply with certain restrictions with M Tech where the IP was co-developed between Smart Co and M Tech under a previous joint venture.

First closing:

An asset sale will occur upon satisfaction of all applicable closing conditions, including customary regulatory approvals, but no earlier than Q3 2021. Smart Co will transfer the first segment for cash consideration of $7B.

Second closing:

Smart Co will transfer the remaining equity and receive the remaining cash consideration of $2B which is not contingent upon any performance obligation or regulatory approval and the transfer of the Les in 2025 is for a fixed and determinable price. In the event that Clear Inc abandons the second closing, it is subject to a $1b penalty.

In Q3 2021, Smart Co sold to Clear Inc the Fab Assets and transferred certain employees, co-developed IP, and other assets related to the Business to a separately created wholly owned subsidiary of Smart (China Co) except the IP. The equity interest of the Business will transfer to Clear at the second closing. In connection with the first closing, Smart and certain affiliates of Clear also entered into a wafer manufacturing and sale agreement (MSA), pursuant to which Smart will manufacture and sell to Clear the memory wafers to be manufactured using the Fab Assets in China until the second closing.

Smart have concluded based on the terms of the transaction agreements that the subsidiary will be variable interest entities for which Smart are not the primary beneficiary because the governance structure of these entities does not allow us to direct the activities that would most significantly impact their economic performance.

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