how to handle - CSC and HPE merger/spinoff to form DXC
ps56k
SuperUser ✭✭✭✭✭
Recently, CSC and HPE merged to form DXC.
Wondering how others are handling this transaction, from the point of view of holding HPE stock, which still exists. Guess it would look like a spinoff, with HPE stockholders receiving 0.086 shares of DXC for every share of HPE stock, while still retaining their full HPE shares, just lesser valued. Also, related, is the Cost Basis for the newly created DXC stock.
Wondering how others are handling this transaction, from the point of view of holding HPE stock, which still exists. Guess it would look like a spinoff, with HPE stockholders receiving 0.086 shares of DXC for every share of HPE stock, while still retaining their full HPE shares, just lesser valued. Also, related, is the Cost Basis for the newly created DXC stock.
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So in principle, HPE was valued at about $18/sh and DXC at about $69/sh. But you only had 0.086 shares of DXC for every HPE share. That total FMV after spinoff become $18 + 0.086 * $69 = $23.93. $18 / $23.93 = 75.2% of the basis stays with HPE; 23.8% of the original HPE basis transfers to DXC. But note!!!!! You brokerage or HPE and DXC may choose different FMV than I have cited and may thus get somewhat different percents than I have shown. I am presenting an example, not definitive data!!! The company will issue a Form 8937 sometime that presents their opinion.
Once those percentages are properly determined, I would be using Remove Shares and Add Shares transactions to drop the HPE basis downward and create the DXC holding with its correct basis.
For the CSC shareholder, this would either be a name change or a Corporate Acquisition where DXC acquires CSC.
Why would you use Remove Shares to drop the HPE basis downward when the number of HPE shares remains the same?
Greg
Remove Shares 100 HPE (original basis = $100 for lot 1 and 53.32 for lot 2)
Add Shares 80 HPE; Basis = 75.20; Acq Date = 1/2/13
Add Shares 6.88 DXC; Basis = 24.80, Acq date = 1/2/13
Add Shares 20 HPE; Basis = 40.10; Acq Date = 2/3/14
Add Shares 1.72 DXC; Basis = 13.22; Acq date = 2/3/14
HTH
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Their breakdown achieves percentages of 75.1% for the HPE portion and 24.9% to the Everett DXC portion (vs my 75.2% and what should have been 24.8% above).
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Indeed the form did change to eliminate the "Taxable" checkbox.
Someone replaced that option with a set of instructions that appear to me to be totally inaccurate. Where do these folks get these ideas from?
I can't say if the change also leads to the experience Gail is citing, but it would not surprise me at this point. That is what I intend to examine further.
They have changed the Corporate Spinoff acction -- for the better . That means, the action now appears to produce the transactions I would use.
Background: For years, like forever, Quicken has generated backdated RtrnCap and Buy transactions for Corporate Spinoff situations. These backdated transaction changed history and subsequently misrepresented net worth over time, investment performance, and a slew of similar historical information. I, and others, have long advocated that entering currently dated Remove and Add Shares transactions was a preferable way to go.
So what you should now be seeing, Gail, is one Remove Shares taking out the shares of the original holding, followed by two Add Shares for each lot of that original holding. Each of those Add Shares should reflect the Acquisition Date of the original lot and the Transaction date of the spinoff. If you look at a Holding or Portfolio view for the day before and the day of the spinoff, the key change should be the addition of the new shares of the new company, and the split of the original company's cost basis to the two companies after the spinoff. With respect to those two companies, the total cost basis should not have changed. If that appears to be true, I think you are in great shape with these 189 transactions.
From my test file:
As you can see, there is one Remove taking away 20 shares, then pairs of Add Shares adding 2, 4, 6, and 8 shares at a time foe my four lots. For the highlighted (first) Add Shares transaction, you can see that the transaction date is 7/2/17, but there is another date listed as 1/1/14. That is the acquisition date of that lot. All the necessary data appears to be in the right places.
HTH
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The reason for my question, for this DXC spin off, when I use:
New shares issued: .086
Cost per old share: 75.1
Cost per new share: 24.9
I obtain the incorrect cost basis for both HPE and DXC, skewed to HPE.
However, if I use:
New shares issued: 1
Cost per old share: 75.1
Cost per new share: 24.9
I obtain the correct cost basis, but the quantity of shares is obviously incorrect.
i would not expect to need to adjust the cost per shares values based on a "new shares issued" not equal to "1."
Thank you.
Generally it would be helpful to know your Quicken version, but I think that answer applies for both 2017 and prior versions.
I'm using quicken 2017.