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.
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).