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Stock and Mergers

Question: I owned Potash stock prior to a merger. The merger was between Potash and Agrium. I received stock in the new company, nothing else, for my Potash investment.
Has a taxable event occurred? I noticed my cost basis was adjusted and I believe a taxable event won't occur until I sell my new position.
Thanks in advance for your assistance.
Reply to
investaguy
You should consult the merger documents which you should have received from Potash during the course of the preliminaries to the merger, which would spell out exactly what the effect would be for stockholder. (While the firm I administer happens to have frequently invested in Potash in years past we haven't been in it recently so we did not get the merger documents and I cannot consult them for you.) Normally, unless you also received cash in lieu of a fractional stock, there should be no taxable event; your block of new shares would simply have the same basis as your block of old shares, though obviously each new share would have a different basis than the old share since it was not a 1-to-1 swap. From what CBC News reports, if you had 100 shares of Potash you would have received 40 shares of the new company, so if your 100 shares would have had a basis of, say, $20 each, for a total of $2000, your 40 shares would also be worth $2000, or $50 each, and that would be the basis on which to recognise gain or loss when you sell them. That would be the case if you did receive cash in lieu, which would be reported as a sale of the fractional share with the appropriate new basis applied to it. If not, and your new reported cost basis is consistent with this scenario, you likely can assume no taxable event occurred, but again, to be certain, I advise you to check the merger documents or call the investor relations department at the new company, which is probably fielding this same question from stockholders every five minutes (it goes with the territory on mergers).
Reply to
David Samuel Barr

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