BARR and TEVA - merged transactions

Hi, ps56k.

The usual starting place for such questions is the Investor Relations pages of the corporations, but that search has been less productive than usual in this case. About all I can find is this paragraph on the Teva page, which tells us what you've already told us, plus a final sentence that offers hope that instructions are coming:

"On December 23, 2008, Barr became a wholly owned subsidiary of Teva and ceased to be traded on the New York Stock Exchange. Pursuant to the merger agreement between the parties, each share of Barr common stock has been converted into the right to receive $39.90 in cash and 0.6272 Teva ADSs. Share exchange instructions and a letter of transmittal will be mailed to Barr shareholders shortly."

The starting assumption is that every sale or exchange of an asset is a taxable transaction, no matter whether we receive cash or other property or a combination. There are many exceptions, of course, and many corporate acquisitions are "tax-free" (actually, tax-deferred). To qualify for such tax-free treatment, the corporations' management must be sure to structure the transaction to meet the strict requirements of a particular tax code (such as Sec. 351 or 355). I've seen no indication that this acquisition was intended to be tax-free. (The only mentions of "tax" I've found in the documents are about the tax implications on the departing Barr executives and their "golden parachutes".) So I assume that the general rules apply: Your gain/loss is fully taxable/deductible.

Record your disposition of Barr as a sale on 12/23/08. Your sale price would be the $5,985 cash plus the FMV (Fair Market Value) of the 94 shares of Teva; deducting your basis (usually cost) from that total should produce your taxable gain or loss. I see today's quote for Teva is $41.65

so I'll use $40 per share for convenience in my example. The only info I've found for Barr `908&p=irol-fundTrading) shows the price was $65.80 on 12/25/08 - which seems incorrect, since that is after the transaction date, but I'll use $66 for convenience. You didn't say how long you held Barr or what you paid for it; the 52-week low was $37.40, so I'll use $40. Using those numbers for illustration, then you could record your purchase of

94 shares of Teva at FMV on 12/23/08; the company should report their opinion of this value. (Your 150 shares x 0.6272 means you were entitled to 94.08 shares of Teva; you probably received about $3 more for your .08 fractional share and need to report that, too.)

Or you could collapse the two entries (sale and purchase) into one in your linked cash account: Debit Cash $5,985 Debit Teva Stock (94 x $40) 3,760 Credit Barr Stock (at cost: 150 @ $40) $6,000 Credit Realized Capital Gain 3,745

I'm sure I don't need to point out how flimsy my assumptions are, since I'm guessing at almost every factor, INCLUDING the tax status of the transaction.

If you can provide more facts, including links to on-line documentation, we can probably find a better answer to your question. All I can suggest at this point is that you wait or inquire for more guidance from Teva's management.

And, of course, since I've been retired for well over a decade, be sure to discuss this with your own CPA before filing your 2008 income tax return. My comments do NOT constitute professional advice on this transaction.

RC

hi - Thanks for the details in your reply. I had most of that under control, and held both since 2006 -

My mental conflict is with Quicken - and Schwab to some extent.

First - Schwab - they always report via the Quicken download that "something" happened, but have not real "action" taken. I have to go onto my Schwab online history to see what happened. The details are there, but there is no "shares removed" or "shares added", merely the cash infusion which I later figured out was the $39.90 x

150shares.

SO - using Quicken 2006 - there is no real "merger" transaction, but in fact, I did find that looking at the Transactions lscreen and doing a "Enter Transaction" button click, I found the "Corporate Aquisition" which had the ratios and other elements of the transaction, which I manually entered. It added the 94.08 shares, but didn't remove the original 150 shares... And in fact, then looking back at the entry created, it transformed into a normal "shares added". SO - I still had to "remove" the original shares, and tiddy up things... It'll be interesting to see the final 1099 from Schwab and then I can compare my Quicken transactions.

Hi, ps56k.

Well, we're still just guessing. But I have a few more random thoughts.

Technically, this is not a "merger" of two equals. It is a "purchase" of one company by another. A merger typically is tax-free under the theory that nobody bought or sold anything; they just pooled their resources. Buy a "purchase" acquisition by the continuing corporation is a "sale" by the shareholders of the acquired company - which seems to be the case with your Barr shares. You sold your Barr shares for Teva shares and some cash "to boot". The only problem is valuing the shares you received, and that information is out there although you don't have it yet.

No, Quicken's "Acquisition" transaction doesn't work well when there is boot involved (other than for fractional shares, in which case it records the

94.08 shares acquired, after which we must record the sale of the .08 shares in a separate Sale transaction). There is no place to record the cash received. Workarounds, such as reducing the Barr basis first by recording receipt of the cash, don't do a good job of recording gain/loss or calculating the new basis. This Quicken tool is really designed for the more-typical case where you would have received ONLY shares in a tax-free acquisition, in which case your basis in your new Teva shares would have been based on your basis in your Barr shares. (But it should have removed the acquired Barr shares.) In a taxable transaction (as I'm assuming this was), your Barr basis is used in calculating your gain/loss, but your new Teva shares are valued at their FMV, with no carryover from Barr.

The 1099 will be interesting, but not necessarily authoritative. Schwab will only be passing along the information it gets from Teva, which is where you should be getting your info, too. You own Teva shares and Teva's management owes you this information.

We can continue guessing, but your best course is probably to record some approximations now, and then go back and delete your guesses and enter the right numbers when you get them.

RC