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Entering stock merger( Cash + stock)


Using Quicken 2005: How would I enter the following transaction.
I own 1000 shares of company A
Company B had a merger(buy out) of company A as follows:
Company B paid to shareholoders of Company A, $17/share for the Company A shares plus 0.5 shares of Company B for each share of Company A.
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(I made up the numbers to make calculation easier but the merger I am talking about is the Federated-May merger). A work sheet was/is not provided on the investors relation site of the home page of Federated.
Reply to
MedRxman

I'm interested, also. I currently have it as a Corporate Acquisition for the shares and a Return on Capital for the $$.
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Regards,
Hank Arnold
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Reply to
Hank Arnold

In this thread
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, there are two methods described (albeit for a different stock) - the Return of Capital method and also by JR7107 a different treatment that is apparently more tax-friendly.
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Mike B
Reply to
Mike B

Until a worksheet is provided I think this woujld work..Your thoughts, Mike..
=============================================== For argument sake lets say that the value Company B stock is $20/sh on day of distribution.
We would then get 500 shares of Company B valued at $ 20/share 10000.00
We would get $17/share for Company A 17000.00
Total value of transaction 27000.00
Company A is worth 62.96 % of the total
Therefore edit the cost basis of Company A (cost*.6296) in Quicken and do a sale of the 1000 shares at $17/share for a true capital gain.
Company B is worth 37.04% of the total
Therefore multiply the original cost basis of Company A by 0.3704 and in Quicken add shares for Company B and use the original acquisition date of Company A so as to ensure a correct holding period. If any fractional shares are involved they can now be sold .
Reply to
MedRxman

Sorry about the broken link. Here is a link to the thread. Try this one, then read the very last post in the thread.
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Reply to
Mike

Hi, MedRxman.
I suppose you saw this paragraph at
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"Investors who are registered holders of May common stock will receive a packet of information in the mail from The Bank of New York within approximately two weeks of the August 30, 2005 Effective Date of the merger. This packet will have information on how to exchange May common stock for the merger consideration, which is $17.75 in cash and 0.3115 shares of Federated Department Stores, Inc. common stock, plus cash in lieu of fractional shares, for each share of May common."
You should have received that packet Tuesday - or Real Soon Now. That should include this not-very-helpful paragraph on Page 7 of the "Instructions, including questions and answers":
"12. What are the tax consequences of the merger to shareholders ? "The cash portion of the exchange is expected to be subject to United States federal income tax at the capital gains rate. Shares of Federated Stock issued in the exchange will generally not be subject to any gain or loss for United States federal income tax purposes. You should review the joint proxy statement/prospectus that you received before the July 13, 2005 shareholder meeting and consult your tax advisor for information relating to your specific situation."
Unfortunately, all the info I've seen so far on their website focuses on urging May Co. shareholders to sign up for Federated's Dividend Reinvestment Plan, rather than explaining shareholders' tax treatment in reasonable detail.
There's no way that even a tax expert can advise you on this transaction without knowing the specific terms of the transaction INCLUDING any special ruling from the IRS that the company's attorneys probably received before the deal was done. Chances are, those attorneys very carefully structured the transaction so that it would fit within some specific section of the Internal Revenue Code, then got the IRS ruling that, yes, if carried out in exactly that way, it would so qualify. But the only way to find out those details is in official company documents.
Mergers can happen in dozens (hundreds? thousands?) of different ways. Tax treatment of the shareholders depends on which of those ways are used for THIS merger. It does us no good to see how some other companies did it, or how this company managed some earlier merger.
My GUESS, based on the two paragraphs quoted above, is that you would first record the $17.75 per share cash as a Return of Capital, reducing your basis on each share. If you had purchased a share for $50, your new basis in that share would be $32.25. If you purchased another share for $10, your basis in that would be reduced to zero, plus you would report a $7.75 long-term or short-term capital gain on that share. You could not simply report that you sold that share for $17.75 because you still own the share - until you exchange it for 0.3115 share of Federated. You cannot have a "negative basis" in the May stock but it can be zero, so if your basis is reduced to zero, any excess is recognized as a gain.
After reducing your share-by-share basis by $17.75 (or to zero), report the exchange of your shares for Federated shares, using Quicken's Corporate Acquisition (stock for stock) screen. Your old basis will be allocated among the Federated shares (including fractions) that you are entitled to receive. If you are entitled to a fractional share, then record sale of the fraction immediately AFTER the merger for the amount of cash you receive for it. (We've never understood why Quicken asks for the price of the acquiring company; it doesn't matter here.)
Remember that this is my GUESS, based on what little clues we have so far. It is subject to revision as we learn more. You should consult your own CPA when you have the documents from which a proper analysis can be made. I've been retired for more than a decade and tax rules change daily.
When you have the answer, please post it - or a pointer to it - here because I'm sure many other readers will also need to know.
(see the PS below):
RC
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R. C. White, CPA
(Retired - no longer licensed to practice)
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Reply to
R. C. White

Thanks for the reply R C. Yes I saw it , but believe it or not some one at FD's Investors Relations told me there would not be a worksheet. I have since proven that statement incorrect and am awaiting the packet and/or posting of a worksheet on the web site of Federated.
Reply to
MedRxman

Hello R.C. Your being an accountant , you will find this informational:
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Also, I finally got hold of someone in Fererated Investors relations who is supposedly sending me the worksheet for the merger.
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Reply to
MedRxMan

Hi, MedRxMan.
Thanks for that link. It sounds right to me. It appears my original GUESS was wrong and you should ignore it.
I still would be interested in the "official" worksheet that you receive from Federated. Could you please post it here - or post a link to it - when it becomes available.
RC
--
R. C. White, CPA
(Retired - no longer licensed to practice)
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Reply to
R. C. White

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