How do I handle the recent merger of Pfizer and Wyeth

We have shares in Pfizer and had shares in Wyeth. Wyeth was merged
into Pfizer as follows: .985 shares of Pfizer for each share of Wyeth
plus $33 for each share of Wyeth. When the transaction was announced
the valuation was $50.19 for each share of Wyeth. When the deal
closed on Oct 15 Pfizer closed at $17.66. This change values each
share of Wyeth at $50.66. If I adjust the PFE closing price for the
.985 of a share of PFE then the $17.66 becomes $17.3951.
I am not sure how to handle the cash and stock portions in Quicken
2009. Also not sure whether the closing price for PFE should be the
$17.66 or the $17.3951. Can someone please provide detailed
Reply to
Hi, Oldman.
That transaction does not fit neatly into any of the wizards in Quicken 2009 because it is an acquisition using both cash and shares of the acquiring company. And it was not structured by the companies as a non-taxable stock for stock acquisition. (If you previously held any Pfizer shares, they are not affected at all by this transaction.)
On the Pfizer website, if you drill down far enough you come to this PDF document:
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Then, under Key Merger Documents, click on "Read about the U.S. Federal Tax Consequences of the Merger" to read a PDF document, which contains this key paragraph:
"Consequences of the Merger Generally "The receipt of Pfizer common stock and cash in exchange for Wyeth stock in the merger generally will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder of Wyeth stock who receives Pfizer common stock and cash in the merger generally will recognize capital gain or loss equal to the difference, if any, between (1) the sum of the fair market value of Pfizer common stock and cash, including any cash received in lieu of fractional shares of Pfizer common stock and (2) such holder's adjusted tax basis in its Wyeth stock exchanged therefor. Gain or loss and holding period will be determined separately for each block of Wyeth stock, i.e. , shares acquired at the same cost in a single transaction, exchanged in the merger. Any capital gain or loss will be long-term capital gain or loss if the U.S. holder's holding period for its Wyeth stock is more than one year at the time of the merger. Currently, long-term capital gain for non-corporate taxpayers is taxed at a maximum federal income tax rate of 15%. If the U.S. holder has held its Wyeth stock for one year or less at the time of the merger, any capital gain or loss will be short-term capital gain or loss. The deductibility of capital losses is subject to certain limitations. A U.S. holder's aggregate tax basis in its Pfizer common stock received in the merger will equal the fair market value of such stock at the effective time of the merger, and the holder's holding period for such stock will begin on the day after the merger."
Note the key phrase, "...will be a taxable transaction..." This means that you SOLD your Wyeth shares. Despite Pfizer's use of ambiguous terminology ("acquired Wyeth in a cash and stock merger"), this is an acquisition, not a merger, in my (non-professional) opinion. Your total sale price was the cash plus the fair market value of the Pfizer share(s) that you received; this is defined in the "(1)" phrase in the quoted paragraph. It's easy to determine the value of the cash, of course; that's $33 per Wyeth share you held. But you probably also received some additional cash, representing the value of any fractional shares of Pfizer that you were entitled to, but for which you received cash in lieu of the fractions. Another PDF document on the Pfizer site, "Review Answers to Frequently Asked Questions", explains (in Paragraph 2) how Pfizer calculated that the fractional share values would be based on $16.836 per Pfizer share. Note that this is NOT the same formula as for valuing and calculating your tax basis in the whole shares you received; see the final sentence of the paragraph I quoted above. Your cash proceeds are based on values for days BEFORE the transaction; your basis in the whole shares is the fair market value of PFE immediately AFTER the acquisition. I've not seen an "official" statement, so I'll use the $17.66 you mentioned.
So, if you held 100 Wyeth shares, you would be entitled to $3,300 cash, plus 98.5 shares of Pfizer. Since they would not issue fractional shares, your .5 share of Pfizer would be converted to .5 x $16.836 = $8.418, rounded to $8.42. So your total proceeds would be: 1. Cash for 100 WYE ($33 x 100) $3,300.00 2. Cash for .5 PFE 8.42 Total Check 3,308.42 3. 98 whole PFE shares @ $17.66 1,730.68 Total Proceeds of Sale $5,039.10
In effect, you sold 100 shares of WYE for $5,039.10 and bought 98 shares of PFE for $1,730.68, or $17.66 per share. You should report the sale of WYE as though you sold the shares for $5,039.10 cash. No need to report the acquisition of PFE at this point, but when you sell these 98 shares, you will use $17.66 per share as your basis and October 16, 2009 (the day after the merger) as your acquisition date.
As I've often mentioned in this newsgroup, I've been retired for nearly 2 decades and tax rules change daily. So be sure you check with your own CPA, rather than rely on my out-of-date memory.
Reply to
R. C. White

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